You are an economist in the Internal Revenue System and just heard of a plan to increase the sales tax on a certain widget by $.06. Last year customers purchased about 10 million widgets. The demand curve in the last year was such that a $.01 increase in price decreases sales by 100,000. A study showed that a $.01 increase in price resulted in producers willing to provide 50,000 more widgets to the market. Congress stated that this $.06 tax will increase government revenues by $600,000 and raise the price of each widget by $.06. Is this correct? If so, explain why this is the case and, if not, what is the increase in prices and revenues?

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