Posted: February 17th, 2017

what are the equilibrium price and quantity? What if a 20% income tax is introduced?

Assume the demand function for basketballs is given by QD=150 3P+0.1I, where P=price of a basketball and I=average income of consumers. Also, assume the supply of basketballs is given by QS=2P. If the market for basketballs is perfectly competitive and the average income is equal to $1,500, what are the equilibrium price and quantity? What if a 20% income tax is introduced?
before the tax, the equilibrium price is $60, and 120 basketballs are traded. The introduction of an income tax would have no effect on the equilibrium proce net of the tax and quantity
before the tax, the equilibrium price is $60, and 120 basketballs are traded. Once the income tax is introduced, the price would decrease by $6, and only 108 basketballs would be traded.
before the tax, the equilibrium price is $60, and 120 basketballs are traded. Once the income tax is introduced, the price would decrease by $6, which would cause the quantity of basketballs traded to increase.
before the tax, the eequilibrium price is $60, and 108 basketballs are traded. Once the income tax is introduced, the price would decrease by $6, and only 120 basketballs would be traded.

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