Rather than prohibiting a good or service, the government might tax it. Imposing such a tax on a good or service ________ the equilibrium price and ________ the equilibrium quantity.
A) raises; increases
B) raises; decreases
C) lowers; increases
D) lowers; decreases

Question

Quizplus · Accepted Answer

Imposing a tax on a good or service typically raises the equilibrium price because the tax is an additional cost that is often passed on to consumers. It decreases the equilibrium quantity because the higher price reduces demand.

Rather Than Prohibiting a Good or Service, the Government Might