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A
True
B
False
Understanding the Answer
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Answer
When a government imposes a per-unit tax on a good, it means that producers must pay a certain amount of money for each unit they sell. This tax increases the cost of production, which can lead to a decrease in the overall supply of that good because some producers may find it less profitable to produce as much. For example, if a company that makes shoes has to pay an extra $5 for each pair they sell, they might decide to make fewer shoes because their profits are lower. Even if demand for shoes is strong, the added cost can discourage production, leading to fewer shoes available for sale. Therefore, regardless of how much people want the shoes, the tax affects the supply side, causing a decrease in the overall market supply.
Detailed Explanation
A per-unit tax does not always reduce supply. Other options are incorrect because Some might think that any tax will always cut supply.
Key Concepts
Per-Unit Taxes
Market Supply and Demand
Elasticity
Topic
Understanding Per-Unit Taxes
Difficulty
medium level question
Cognitive Level
understand
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