Question

The diagram below shows the equilibrium price and quantity of commodity A which is produced jointly with commodity B.
do do-demand curve
so so - supply curve
PE -Equilibrium point
QE -Equilibrium quantity
         

1. On the diagram show the effect of a decrease of tax charged on commodity B on the equi8librium price and quantity of commodity A
2. Explain the effect of a decrease of tax charged on commodity B on the equilibrium price and quantity of commodity A

Answer 1

1. 
   
2.  
   1. When tax charged on commodity B, decrease its supply and that of commodity A increases
   2. The supply curve of commodity A shifts outwards to the right to S1S1 
   3. The equilibrium price decreases from PE0 to PE1 
   4. The equilibrium quantity increases from QE0 to QE 1