Figure 10-9
-Refer to Figure 10-9, Panel (b) and Panel (c). Which of the following is correct?
A)A tax would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
B)A subsidy would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome.
C)A tax would move the market in Panel (b) closer to the socially optimal outcome, but a subsidy would move the market in Panel (c) closer to the socially optimal outcome.
D)A subsidy would move the market in Panel (b) closer to the socially optimal outcome, but a tax would move the market in Panel (c) closer to the socially optimal outcome.

Question

Figure 10-9   
-Refer to Figure 10-9, Panel (b) and Panel (c). Which of the following is correct?
A)A tax would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome. 
B)A subsidy would move the market in Panel (b) and the market in Panel (c) closer to the socially optimal outcome. 
C)A tax would move the market in Panel (b) closer to the socially optimal outcome, but a subsidy would move the market in Panel (c) closer to the socially optimal outcome. 
D)A subsidy would move the market in Panel (b) closer to the socially optimal outcome, but a tax would move the market in Panel (c) closer to the socially optimal outcome.

Quizplus · Accepted Answer

In Panel (b), a tax would shift the supply curve to the left, leading to a higher price and a lower quantity traded, which moves the market closer to the socially optimal outcome. In Panel (c), a subsidy would shift the demand curve to the right, leading to a higher price and a higher quantity traded, which also moves the market closer to the socially optimal outcome.