What is the impact of a production tax on the equilibrium price? The equilibrium price A. falls and the equilibrium quantity rises. B. rises and the equilibrium quantity rises. C. rises and the equilibrium quantity falls. D. falls and the equilibrium quantity falls.

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Business

Davis Hodge

2 March, 15:13

What is the impact of a production tax on the equilibrium price? The equilibrium price A. falls and the equilibrium quantity rises. B. rises and the equilibrium quantity rises. C. rises and the equilibrium quantity falls. D. falls and the equilibrium quantity falls.

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Answers (1)

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Kamron Kirby · Answer 1

The answer is: C. rises and the equilibrium quantity falls.

Explanation:

The impact of a production tax on the equilibrium price will be that it increases and the equilibrium quantity decreases.

A tax increases the price a buyer pays for a product, so if the price is higher, then the quantity demanded will be lower.

It doesn't matter if the tax is levied upon the supplier or the buyer, since the result will be the same, a higher price for the product. The buyer only cares for the total price he or she pays (including taxes) and the producer only cares about the net revenue they get from a sale (discounting taxes).