Suppose that the government imposes a new $1 per-unit tax on the production of soft drinks.The result would be a(n)________________ in the equilibrium price of soft drinks and a(n)______________________in the equilibrium quantity of soft drinks.
A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

When a tax is imposed on the production of a good, the supply curve shifts to the left (decreases). This causes the equilibrium price to increase and the equilibrium quantity to decrease, as the taxed amount is partially passed on to consumers in the form of higher prices.Most of the time, taxes act like a wedge between the supply curve and the demand curve, and so consumers pay a higher price and producers receive a lower price.

Suppose That the Government Imposes a New $1 Per-Unit Tax