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2 years ago

Suppose that a $2 per widget tax is levied on the sellers of widgets. How much revenue is collected from this tax on widgets

Business

1 answer:

JulijaS [17]2 years ago

8 0

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.

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