A lump-sum tax decreases the marginal cost of production for businesses, leading to increased output in the market.

A lump-sum tax is a fixed amount that businesses must pay, regardless of how much they produce. This type of tax does not change with the level of output, which means that once a business pays it, the cost of producing each additional unit of their product remains the same. Because the marginal cost, or the cost of producing one more unit, does not increase with the tax, businesses are encouraged to produce more. For example, if a factory that makes toys pays a lump-sum tax of $1,000, this cost does not affect the cost of making each toy, allowing the factory to focus on producing more toys without worrying about increasing costs for each additional toy. As a result, businesses may increase their output, leading to more products available in the market.