Holding all else constant,an increase in consumption taxes,such as sales taxes or a VAT,will ________ the price of consumption goods and ________ output.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

An increase in consumption taxes will increase the price of consumption goods for consumers. This is because producers will pass on the burden of the tax to the consumers in the form of higher prices. This will lead to a decrease in demand for consumption goods, which will in turn decrease output. Therefore, an increase in consumption taxes will increase the price of consumption goods and decrease output.

Holding All Else Constant,an Increase in Consumption Taxes,such as Sales