If higher taxes raise the unit cost of a competitive industry, then in the long run, industry supply
A)and market price decrease.
B)decreases and market price increases.
C)increases and market price decreases.
D)and market price increase.
E)and market price remain constant.

Question

Quizplus · Accepted Answer

Higher taxes increase the unit cost of production for firms in a competitive industry. In the long run, this leads to a decrease in supply as some firms may exit the market or reduce production due to lower profitability. With a decrease in supply, the market price increases due to the higher cost of production being passed on to consumers and the reduced availability of the product.

If Higher Taxes Raise the Unit Cost of a Competitive