Day: July 25, 2019

The table below shows the market for a product before the imposition of an indirect tax.

What would be the change in the equilibrium price if a tax of £4 was imposed?

Select ONE answer:

1. £1
2. £2
3. £3
4. £4

Show your workings to arrive at your answer, and explain and justify your reasons:……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Economics KS5 classes.

The answer is 1

1. Correct: The initial equilibrium price is £16. When an indirect tax of £4 is imposed, the firms would receive the sale price minus the tax. So now at £20, they will supply what they previously supplied at £16. This will create a new supply curve. The new equilibrium price is now £17, a rise of £1. Consumers are bearing £1 of the tax and the firms £3.
2. Incorrect
3. Incorrect
4. Incorrect

 

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