In the market for widgets, the supply curve is the typical upward-sloping straig

Question

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by a. 40 per month. b. 50 per month. c. 75 per month. d. 100 per month.

Explanation / Answer

When there is no tax, equilibrium quantity is 200 units.

But now a $5 tax per unit is imposed.

So goverment revenue has to be (200 *$5) = $1000

But Government revenue is $800, that means loss of government revenue is ($1000 - $800) = $200

So quantity loss is ($200 / $5) = 40.

So we can conclude that equilibrium quantity of widgets has falles by 40 per month.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.