Which of the following is the most reliable outcome of raising the tax rate on a particular good?1 pointThe quantity of the good sold will decrease.The amount of tax revenue collected will increase.The amount of tax revenue collected will decrease.The amount of tax revenue collected will remain unchanged.
Question
Which of the following is the most reliable outcome of raising the tax rate on a particular good?1 pointThe quantity of the good sold will decrease.The amount of tax revenue collected will increase.The amount of tax revenue collected will decrease.The amount of tax revenue collected will remain unchanged.
Solution
The most reliable outcome of raising the tax rate on a particular good is that the quantity of the good sold will decrease.
Here's why:
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When the tax rate on a good is increased, the price of that good effectively increases for consumers. This is because sellers often pass on the cost of the tax to consumers in the form of higher prices.
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According to the law of demand, as the price of a good increases, the quantity demanded of that good decreases. This is because consumers are less willing or able to buy the good at a higher price.
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Therefore, when the tax rate on a good is increased, it is most reliable to expect that the quantity of the good sold will decrease.
It's important to note that while it's possible that the amount of tax revenue collected could increase, decrease, or remain unchanged, these outcomes depend on various factors such as how responsive consumers are to price changes (price elasticity of demand). Therefore, these outcomes are less reliable than a decrease in the quantity sold.
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