The difference between a tax and a subsidy is that when the government places a tax on a good,it ________ the equilibrium price and ________ the equilibrium quantity,whereas when the government places a subsidy on a good,it ________ the equilibrium price and ________ the equilibrium quantity.

Question

Quizplus · Accepted Answer

A tax on a good typically increases the equilibrium price (as the cost of production or selling price for consumers increases) and decreases the equilibrium quantity (as higher prices lead to lower demand). Conversely, a subsidy decreases the equilibrium price (by making it cheaper to produce or buy) and increases the equilibrium quantity (as lower prices boost demand).

The Difference Between a Tax and a Subsidy Is That