Use the following to answer questions:
Figure: Model of a Competitive Market
-(Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are external costs, a tax imposed on sellers will:
A) decrease the equilibrium quantity.
B) increase the equilibrium quantity.
C) have no effect on the equilibrium price.
D) decrease the equilibrium price.

Question

Use the following to answer questions:
Figure: Model of a Competitive Market 
-(Figure: Model of a Competitive Market) Given the figure Model of a Competitive Market, if there are external costs, a tax imposed on sellers will:
A) decrease the equilibrium quantity. 
B) increase the equilibrium quantity. 
C) have no effect on the equilibrium price. 
D) decrease the equilibrium price.

Quizplus · Accepted Answer

A tax imposed on sellers will increase the cost of production, leading to a decrease in supply. This results in a higher equilibrium price and a lower equilibrium quantity, especially when external costs are present.

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