Question

Questions are based on the demand and supply diagrams in Figure $D_1$ and $S_1$ are the original demand and supply curves $D_2,D_3,S_2$ and $S_3$ are possible new demand and supply curves. Starting from initial co librium point (1) what point on the graph most likely to result from each change?

$\to$Assume that the government has just removed the 10% excise duty on good X. What point in Figure 1 is most likely to be the new equilibrium price and quantity?

• A. Point 6.
• B. Point 4.
• C. Point 7.
• D. Point 8.

Answer 1

The correct option is D Point 8.

Demand remains constant as nothing is given about it. Supply increases as the government has withdrawn the taxes. Thus, Point 8 marks the new equilibrium point.