Complete Question:
The supply and demand for widgets are given by the following equations: Q = 2,000 - 300P QS = -100 +100P A. where P=price per widget and QD and Qs are the quantities of widgets demanded and supplied. Suppose that a $2 per widget tax is levied on the sellers of widgets. How much revenue is collected from this tax on widgets?
Answer:
The revenue collected from this tax on widgets is
$4,200 (2,100 * $2)
Explanation:
a) Data and Calculations:
The demand for widget = Qd = 2000-300P
The supply for widget = Qs = -100+100P
At equilibrium, the price before tax can be calculated as follows:
Qd = Qs --this is the equilibrium condition
Therefore, 2000-300P = -100+100P
or 2000 + 100 = 300P + 100P
that is 2100 = 400P
or 400P = 2100
Therefore, P = 2100/400
Price per unit = $5.25
The revenue collected from this tax on widgets = $2 * 2,100 = $4,200
b) Since the widget tax is levied on the sellers, it implies that the revenue collected from the widget tax will total $4,200 based on the equilibrium quantity of 2,100 widgets.
