WIDGETS
P = 80 - Q (Demand)
P = 20 + 2Q (Supply)
We saw in the last question the equilibrium quantity will now be 18 (instead of 20) and the equilibrium price is now 62 (instead of 20). Which of the following statements is true:
(a) Tax revenue will equal $108
(b) Price increases by $4
(c) Quantity decreases by 4 units
(d) Consumers pay $70
(e) Producers pay $36
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Answer: It's easy to show that most of these are wrong:
(b) Is wrong since price increases by $2.
(c) Is wrong since quantity decreases by 2 units.
(d) Is wrong since consumers pay $62.
(e) Doesn't look like it can be right. What does it mean that "producers pay $36". In what? Taxes? Lost sales? We will come back to this one if (a) looks incorrect.
(a) tax revenue will equal $108. We know that there are 18 units sold and the revenue to the government is $6 a unit. 18 * $6 = $108. Thus we can conclude that (a) is the correct answer.
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