When the government places a tax on a good and all else is held constant,which of the following would most likely happen?

Question

Quizplus · Accepted Answer

When the government places a tax on a good and all else is held constant, the price of the good increases, which in turn decreases the overall consumption of the good, assuming the good does not have a vertical demand curve. This is because consumers are now paying more for the same quantity of the good, which reduces the quantity demanded. The supply curve does not shift, and the tax revenue received by the government depends on the elasticity of demand and supply. The price and quantity do not necessarily adjust back to the competitive market equilibrium point, as the tax has created a new equilibrium with higher prices and lower quantities.

When the Government Places a Tax on a Good and All