In the market for books, initially there are no taxes on books. Books are normal goods. The government introduces a tax of $4 a book and, at the same time, people's income fall by $4,000 a year. Following these two changes, the equilibrium quantity of books
A) decreases.
B) increases.
C) remains unchanged.
D) either increases or decreases. We cannot say which.

Question

Quizplus · Accepted Answer

The introduction of a tax increases the price of books, reducing demand. Additionally, a fall in income decreases demand for normal goods like books. Both factors lead to a decrease in the equilibrium quantity of books.

In the Market for Books, Initially There Are No Taxes