Business – 3.1 The nature of marketing – Demand and supply | e-Consult
3.1 The nature of marketing – Demand and supply (1 questions)
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Answer:
- Equilibrium occurs where quantity demanded equals quantity supplied. From the table this happens at £9, where both demand and supply are 80 units. Therefore, the equilibrium price is £9 and the equilibrium quantity is 80 units.
- A £2 tax shifts the supply curve upward by £2 at each quantity. The new supply schedule adds £2 to each original price:
- Original £5 → New supply price £7 (quantity 40)
- Original £7 → New supply price £9 (quantity 70)
- Original £9 → New supply price £11 (quantity 100)
- Original £11 → New supply price £13 (quantity 130)
Comparing the new supply prices with the demand schedule, the only price where quantity demanded equals the new quantity supplied is at £11: demand at £11 is 60 units, and the new supply also supplies 60 units (since the original supply of 40 at £5 becomes 40 at £7, etc., the matching point is £11 with 60 units). Thus, the new equilibrium price paid by consumers is £11 and the equilibrium quantity falls to 60 units.
- Tax revenue = Tax per unit × Quantity sold = £2 × 60 = £120.