When the government imposes taxes on firms that are earning high profits, there could be an unintended effect of reducing the supply of goods in that market compared to what the supply would be if the profits were not taxed.

Question

Quizplus · Accepted Answer

When firms face higher taxes on their profits, their net income decreases, which can lead to reduced incentives for investment and expansion. Consequently, this can result in a lower supply of goods in the market as firms may produce less due to the reduced profitability.

When the Government Imposes Taxes on Firms That Are Earning