In equilibrium, a market sells 2,000 widgets at a price of $10. Suppose that the government...

In equilibrium, a market sells 2,000 widgets at a price of $10. Suppose that the government levies a $1 sales tax on the sale of widgets, and the tax is collected by the widget sellers at the time of sale. Which of the equilibrium quantities below is most likely to result? (Assume the demand curve Is downward-sloping and the supply curve is upward-sloping.)

2,500 widgets at $10

1,500 widgets at $11

2,500 widgets at $11

2,000 widgets at $10.50

Solutions

Expert Solution

As the demand curve is downward sloping and supply curve is upward sloping that means none of them are perfectly inelastic and burden of the tax will be shared between both of them, tax will increase the price of the goods and reduce the quantity traded in the market.

the answer is "B".

Rahul Sunny answered 1 year ago

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