Question

In the market for silver bracelets, 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 bracelet 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 bracelets has fallen by ________________.

Answer 1

Answer:

Equilibrium quantity falls by 200 - 160 = 40 units

Explanation:

Below is the calculation for the quantity by which the equilibrium quantity falls.

Given the equilibrium quantity = 200 per month

Tax per bracelet  = $5

Total tax revenue = $800

Number of bracelet on which tax imposed = 800 / 5 = 160

Thus equilibrium quantity falls by 200 - 160 = 40 units