When taxes or subsidies on a particular product are introduced into the general equilibrium model we can be sure that
A)taxes make the taxed product appear too expensive to its producer.
B)subsidies make the product appear too cheap to its producer.
C)we get too much of the subsidized product and too little of the taxed product.
D)a more fair allocation of resources is possible.

Question

Quizplus · Accepted Answer

Taxes increase the cost of production, leading to a decrease in supply, while subsidies decrease the cost, leading to an increase in supply. This results in an overproduction of subsidized products and underproduction of taxed products, distorting the market equilibrium.

When Taxes or Subsidies on a Particular Product Are Introduced