Question

In: Economics

If the government imposes a new tax on producers of apples, what happens in the market...

If the government imposes a new tax on producers of apples, what happens in the market for apples?

Question 17 options:

A)

 There is an increase in supply.

B)

 There is a decreased in supply.

C)

 There will be a decrease in demand.

D)

 There is an increase in the quantity demanded.

Solutions

Expert Solution

Option C is correct- there will be a decrease in demand.

When the government will impose a tax on producer then he wil either add tax in the prices for consumer or will share the burden of tax himself also. The effect of the tax on the supply-demand equilibrium is to shift the quantity toward a point where the before-tax demand minus the before-tax supply is the amount of the tax.

Market or the apples after imposing a tax can be understood by the graph below:

In the graph price before imposing tax was P1 and quantity was Q1 but when government imposed the tax the price increase to P2 and quantity reduce to Q2, In graph the equlibrium demand also reduce(where price is P2 and Quantity Q2).

We can conclude from here that of the tax imposed on producer then demand will fall.

Rahul Sunny answered 1 year ago
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