Question

In the market for garden hoses, 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 garden hoses is 200 per month when there is no tax. Then a tax of $5 per garden hose 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 garden hoses has fallen by:

a) 40 per month.
b) 50 per month.
c) 75 per month.
d) 100 per month.

Answer 1

Answer:

The equilibrium quantity of widgets has fallen by 40 per month (Option A).

Explanation:

Equilibrium quantity was 200 units when there was no tax.

When a $5 tax per unit was imposed, the government revenue is calculated as  (200 *$5) = $1000

But the government revenue provided in the question is $800,  which means the loss in government revenue is ($1000 - $800) = $200.

Thus, the quantity loss is ($200 / $5) = 40.

In conclusion, the equilibrium quantity of widgets has fallen by 40 per month.