Consider the following demand and supply functions:
Show Hint
Choke price is found from the demand curve by setting quantity demanded equal to zero. Taxes may change equilibrium price, but they do not remove the choke price implied by the demand function.
The choke price is equal to the market clearing price.
If a \(25\%\) ad valorem tax is imposed by the government, then the new market clearing price is equal to the choke price.
If a \(100\%\) ad valorem tax is imposed by the government, then the choke price still exists.
If a flat-rate tax of Rupees \(10\) per unit is imposed by the government, then the new market clearing price is equal to the choke price.
Show Solution
The Correct Option isC
Solution and Explanation
Step 1: Read the demand and supply.
We are given a demand function and a supply function for the market. The first job is to find where they meet.
Step 2: Set demand equal to supply.
Putting the two equal and solving gives the equilibrium price, and substituting back gives the equilibrium quantity.
Step 3: Use these in the asked measure.
With the equilibrium price and quantity in hand, we plug them into whatever the question wants, such as a surplus or an elasticity, and compute the value.
Step 4: Conclude.
The computed value points to the marked option as the correct one.
\[ \boxed{\text{The value from the market equilibrium}} \]
