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Market Interventions and Changes in Surplus


Let us assume that before government intervention, the equilibrium quantity of knicknacks sold on the market is 25, at a price of \$12. The government decides that knickknacks are hazardous to your health, and decide to implement a tax of \$4 in an effort to decrease the consumption of the dangerous knickknacks. The tax is quite effective, and decreases the quantity of knickknacks consumed to 20. Assume that the demand and supply curves are linear.