1. The supply and demand for widgets are given by the following equations:

Q_D = 500,000 – 20,000P

Q_S = 30,000P

where P = the price per widget and Q_D is the quantity of widgets demanded per year and Q_S is the quantity of widgets demanded per year.

1. What is the equilibrium price and quantity of widgets?

Suppose that a $1 per widget tax is levied on the sellers of widgets.

2. What is the impact of this tax on the equilibrium price and quantity?

Suppose the tax of $1 per widget is levied on the buyers of widgets.

3. What is the impact of this tax on the equilibrium price and quantity?

4. What is the excess burden of this tax on widgets?

5. What is the amount of revenue collected from this tax on widgets?

6. What can you say about the incidence of this tax on widgets between buyers and sellers?

Answer rating: 100% (QA)

To find the equilibrium price and quantity of widgets we need to find the point where the quantity demanded QD equals the quantity supplied QS We can ... View the full answer