If the government increased taxes on soft drinks, the result would be:
A)an increase in equilibrium price and an increase in equilibrium quantity assuming demand is relatively inelastic.
B)an increase in equilibrium price and a decrease in equilibrium quantity assuming demand is relatively inelastic.
C)an increase in equilibrium price and an increase in equilibrium quantity assuming demand is perfectly inelastic.
D)an increase in equilibrium price and a decrease in equilibrium quantity assuming demand is perfectly inelastic.
E)no change in equilibrium price and a decrease in equilibrium quantity assuming demand is relatively inelastic.

Question

Quizplus · Accepted Answer

When taxes are increased on a product, the cost of production increases for the supplier, which leads to a shift in the supply curve to the left. This results in a higher equilibrium price and a lower equilibrium quantity. Assuming that the demand for soft drinks is relatively inelastic, the increase in price will not greatly affect the quantity demanded. Hence, option B is the correct choice.

If the Government Increased Taxes on Soft Drinks, the Result