If a tax is placed on the output of perfectly competitive firm that imposes external costs on society,the firm's marginal cost curve will shift ________ and the market supply curve will shift to the ________.
A) down; left
B) down; right
C) up; right
D) up; left

Question

Quizplus · Accepted Answer

When a tax is placed on the output of a perfectly competitive firm that imposes external costs on society, the firm's marginal cost curve will shift upward by the amount of the tax. This is because the tax increases the cost of production for the firm. As a result, the market supply curve will shift to the left, since the firm will supply less output at each price level. Therefore, D is the correct choice.

If a Tax Is Placed on the Output of Perfectly