Question

Yachts are produced by a perfectly competitive industry in Dystopia. Industry output (Q) is currently 30,000 yachts per year. The government, in an attempt to raise revenue, places a $20,000 tax on each yacht. Demand is highly, but not perfectly, elastic. The result of the tax in the long run will be that1. Q falls from 30,000; P rises by less than $20,000.2. Q falls from 30,000; P rises by $20,000.3. Q falls from 30,000; P does not change.4. Q stays at 30,000; P rises by $20,000.

Answer 1

Answer: 2. Q falls from 30000, P rises by $20,000.

Step-by-step explanation:

When the Government imposes a tax of $20 000 fine on each yacht produced, the Tax imposed increases price per yacht which will then course a huge fall in the demand because the demand is highly elastic.

The Price movement is same in the long run and short run, in the Long run Price will rise by $20 000. Quantity will fall from Q 30000