Relative to a situation in which liquor is not taxed,the imposition of a tax on liquor causes
A)the equilibrium quantity of liquor demanded to decrease and the equilibrium quantity of liquor supplied to decrease.
B)the equilibrium quantity of liquor demanded to decrease and the equilibrium quantity of liquor supplied to increase.
C)the equilibrium quantity of liquor demanded to increase and the equilibrium quantity of liquor supplied to decrease.
D)the equilibrium quantity of liquor demanded to increase and the equilibrium quantity of liquor supplied to increase.

Question

Quizplus · Accepted Answer

The imposition of a tax on liquor increases the cost of supplying liquor, which leads to a decrease in the quantity of liquor supplied. As a result, the price of liquor increases. This increase in price, in turn, leads to a decrease in the quantity of liquor demanded by consumers. Thus, the imposition of a tax on liquor results in a decrease in both the equilibrium quantity of liquor demanded and supplied.

Relative to a Situation in Which Liquor Is Not Taxed,the