Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Total production levels will increase due to higher costs being absorbed by consumers.
B
Total production levels will remain unchanged as firms will offset the costs.
C
Total production levels will decrease as firms may reduce output to maintain profit margins.
D
Total production levels will increase as firms seek to innovate to reduce costs.
Understanding the Answer
Let's break down why this is correct
Answer
When the government imposes a tax on production, it raises the variable costs for businesses. This means that companies have to spend more money to produce the same amount of goods. As a result, many businesses may decide to produce less because the higher costs can reduce their profits. For example, if a factory that makes toys has to pay more in taxes, it might cut back on how many toys it makes to avoid losing money. However, if the tax is aimed at reducing negative externalities, like pollution, it can lead to better overall outcomes for society, even if it means less production in the short term.
Detailed Explanation
When production costs go up, companies might make less. Other options are incorrect because This idea suggests that consumers will just pay more; This option thinks companies can easily balance costs.
Key Concepts
Variable costs
Externalities
Government intervention.
Topic
Cost Changes and Production Levels
Difficulty
hard level question
Cognitive Level
understand
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