Suppose that a hog-producing firm has been dumping its wastes into the local river. The government taxes the sale of hogs to pay for the cost of the river cleanup. As a result
A) more hogs are produced and the price falls
B) more hogs are produced and the price increases
C) fewer hogs are produced and the price falls
D) fewer hogs are produced and the price increases
E) quantity produced doesn't change but the price increases

Question

Quizplus · Accepted Answer

When the government taxes the sale of hogs, the cost of production effectively increases for the hog-producing firm. This leads to a decrease in supply as it becomes more expensive to produce and sell hogs. Consequently, with a reduced supply, the market price for hogs increases.

Suppose That a Hog-Producing Firm Has Been Dumping Its Wastes