All other things unchanged, a tax on a product that leads to an increase in the cost of production would:Question 17Select one:a.lead to an increase in supply.b.lead to a decrease in demand.c.result in an increased price.d.lead to a decrease in supply.
Question
All other things unchanged, a tax on a product that leads to an increase in the cost of production would:Question 17Select one:a.lead to an increase in supply.b.lead to a decrease in demand.c.result in an increased price.d.lead to a decrease in supply.
Solution
The correct answer is d. lead to a decrease in supply.
Here's why:
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A tax on a product increases the cost of production. This means it costs more for producers to make the same amount of product.
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When the cost of production increases, producers are less willing or able to produce the same quantity at the same price. This is because the tax eats into their profit margins.
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As a result, the quantity of the product that producers are willing to supply at each price decreases. This is represented by a leftward shift of the supply curve in economic models.
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Therefore, all other things unchanged, a tax on a product that leads to an increase in the cost of production would lead to a decrease in supply.
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