The government imposes a tax on the sale of a good whose production is creating a negative externality.The value of the tax is $4 per unit sold.In the new equilibrium,you would expect:

Question

Quizplus · Accepted Answer

When a tax is imposed on a good that creates a negative externality, it increases the cost of production for the seller. As a result, the supply curve shifts to the left, causing a decrease in quantity and an increase in price. However, the actual change in price and quantity will depend on the elasticities of supply and demand.

In this case, a tax of $4 per unit sold is imposed on the seller. Since the production of the good is creating a negative externality, the supply curve will shift to the left, but how much it shifts will depend on the elasticity of supply. If the supply is relatively inelastic, the price will increase substantially, and the quantity will decrease by a small amount. However, if the supply is relatively elastic, the price will not increase as much, and the quantity will decrease substantially.

Therefore, based on the information given in the question, we can conclude that the new equilibrium will result in less to be sold and the price to increase by less than $4. Hence, the correct answer is D.

The Government Imposes a Tax on the Sale of a Good