Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It increases the quantity supplied at every price, leading to higher equilibrium prices.
B
It raises the marginal cost of production, leading to a decrease in quantity supplied at each price.
C
It has no effect on the market equilibrium since producers absorb the tax.
D
It encourages producers to increase production to cover the tax costs.
Understanding the Answer
Let's break down why this is correct
Answer
A per-unit tax on a good is a fee that the government charges for each unit sold. When this tax is applied, it increases the cost of selling the good for producers. As a result, producers may decide to raise their prices to cover the tax, which can lead to fewer people buying the product. For example, if a tax of $2 is imposed on bottles of soda, producers might increase the price from $1 to $3. This change can lead to a new market equilibrium, where the quantity sold decreases because some consumers may choose not to buy the soda at the higher price.
Detailed Explanation
A per-unit tax raises the cost for producers. Other options are incorrect because This option suggests that producers will supply more, but higher costs actually make them supply less; This option says the tax has no effect, which is not true.
Key Concepts
Per-unit taxes
Market equilibrium
Marginal cost of production
Topic
Understanding Per-Unit Taxes
Difficulty
medium level question
Cognitive Level
understand
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