Answer to Question #90881 in Microeconomics for iiiiiiii

Question #90881
In the town of Rochester, widgets are sold by a competitive industry at an equilibrium price of $12 apiece. One day the city simultaneously imposes a price ceiling of $7 per widget and a sales tax of $5 per widget.
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Expert's answer
2019-06-18T09:32:06-0400

If the city simultaneously imposes a price ceiling of $7 per widget and a sales tax of $5 per widget, then the consumers will pay the same final price of $12 as before, because they pay full amount of sales tax of $5, but producers will produce less at price ceiling of $7, that's why there will be a shortage of widgets (the quantity demanded is higher than the quantity supplied), so consumers need to spend time in line to get widgets.




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