Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?
A) supply would increase
B) demand would decrease
C) supply would decrease
D) price would decrease

Question

Refer to the provided supply and demand graph of Product X. What would happen if the government taxed the producers of this product because it has negative externalities in production?
A) supply would increase 
B) demand would decrease 
C) supply would decrease 
D) price would decrease

Quizplus · Accepted Answer

A tax on producers would increase their costs, leading to a decrease in supply as some producers may choose to exit the market. This shift in supply would cause an increase in price and decrease in quantity demanded, represented by a movement along the demand curve to a new equilibrium point at a higher price and lower quantity. Therefore, the correct answer is C, as supply would decrease.

Refer to the Provided Supply and Demand Graph of Product