If a tax is placed on perfectly competitive firms that impose external costs on society, the firm's ________ curve will shift up and the industry ________ curve will shift to the left.
A) marginal cost; demand
B) marginal benefit; demand
C) marginal benefit; supply
D) marginal cost; supply

Question

Quizplus · Accepted Answer

Imposing a tax on firms that generate external costs effectively increases their production costs. This results in the marginal cost curve shifting upwards because it now costs more to produce each additional unit. At the industry level, this translates to a decrease in the overall quantity supplied at any given price, which is represented by the supply curve shifting to the left. Demand curves are not directly affected by changes in the firm's production costs.

If a Tax Is Placed on Perfectly Competitive Firms That