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,we would expect

Question

Quizplus · Accepted Answer

The tax on the sale of the good will increase the cost of production for the producers, thus decreasing the supply. As a result, the equilibrium quantity will decrease. The increase in price will depend on the elasticity of demand. However, since the tax is $4 per unit, the price will increase by less than $4. Therefore, less will be sold, and the price will increase by less than $4. Option D is the best choice.

The Government Imposes a Tax on the Sale of a Good