S
salonijain
Member
how does quantity supplied changes to 2(p-5)?
please explain
please explain
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Graham Aylott
Member
Originally, the supplier will need a market price of P to cover its production costs (ie the cost of land, labour, capital and raw materials.), whilst leaving it some money left over for profit.
However, the tax of 5 means that the quantity supplied will change to 2(P-5), where P is the new market price.
This is because the supplier will receive the new market price of P, but will then need to deduct 5 from this to pay to the tax authorities, leaving it with P-5 to cover its production costs (ie. the cost of land, labour, capital and raw materials). It is therefore this P-5 (net of the tax) on which it will base its decision regarding how many units to supply.
However, the tax of 5 means that the quantity supplied will change to 2(P-5), where P is the new market price.
This is because the supplier will receive the new market price of P, but will then need to deduct 5 from this to pay to the tax authorities, leaving it with P-5 to cover its production costs (ie. the cost of land, labour, capital and raw materials). It is therefore this P-5 (net of the tax) on which it will base its decision regarding how many units to supply.
S
salonijain
Member
got it!