What is the equilibrium price and quantity of CFC-11 before the excise tax?
Consider the following market for CFC-11, a known ozone-depleting substance:
Demand: Q= 20 – 1.5P Supply: Q= 5+0.5P
whereP is price per pound.
Assume the governmental authority imposes a $5 per pound excise
tax on CFC-11, which shifts the supply function to Q’ = 2.5 +0.5P.Use this information for any or all of the next three questions below.
a. P = $8.75; Q = 5 c. P = $6.875; Q = 8.75
b. P = $7.5; Q = 8.75 d. none of the above
b. P = $7.5; Q = 8.75
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