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.

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

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 can raise $800 per month in tax revenue.

We need to find the level of demand that allows the government to raise $800 per month.

Q=Total Tax/Unitary Tax

Q= 800/5

Q= 160

The new equilibrium is 160 units. Therefore, the equilibrium has fallen 40 units.