The diagram below shows the demand curve, supply curve, and the marginal social cost curve for a manufacturing unit.

-Refer to the scenario above. If the government imposes a tax of _______,output will ______.
A) $1; fall below the socially optimal level
B) $2; rise above the socially optimal level
C) $2.50; fall below the socially optimal level
D) $4.50; rise above the competitive level

Question

The diagram below shows the demand curve, supply curve, and the marginal social cost curve for a manufacturing unit.
 
-Refer to the scenario above. If the government imposes a tax of _______,output will ______.
A) $1; fall below the socially optimal level 
B) $2; rise above the socially optimal level 
C) $2.50; fall below the socially optimal level 
D) $4.50; rise above the competitive level

Quizplus · Accepted Answer

A tax generally increases the cost of production or the price for consumers, leading to a decrease in quantity produced or consumed, thus output is likely to fall below the socially optimal level when a tax is imposed.

The Diagram Below Shows the Demand Curve, Supply Curve, and the Marginal