-The above figure shows the market for steel ingots.If the market is competitive,and the government institutes a $100 specific tax on steel,then
A) less than the socially optimal quantity of steel is produced.
B) the socially optimal quantity of steel of 50 units is produced.
C) the socially optimal quantity of steel of 100 units is produced.
D) more than the socially optimal quantity of steel is produced.

Question

-The above figure shows the market for steel ingots.If the market is competitive,and the government institutes a $100 specific tax on steel,then
A) less than the socially optimal quantity of steel is produced. 
B) the socially optimal quantity of steel of 50 units is produced. 
C) the socially optimal quantity of steel of 100 units is produced. 
D) more than the socially optimal quantity of steel is produced.

Quizplus · Accepted Answer

When a $100 specific tax is imposed on steel in a competitive market, the cost of production increases. This leads to a decrease in supply, as producers are less willing or able to supply the same quantity at previous prices. Consequently, the quantity of steel produced and sold in the market decreases, leading to less than the socially optimal quantity of steel being produced. This is because the tax creates a wedge between the price buyers pay and the price sellers receive, distorting the market equilibrium and leading to a decrease in economic efficiency.

-The Above Figure Shows the Market for Steel Ingots