When a tax is levied on a good, what happens to the market price and why?Select one:O a The market price rises because both quantity demanded and quantitycross outsupplied falls.O b. The market price falls because quantity supplied falls.cross outO. The market price falls because quantity demanded falls.cross outO d. The market price rises because both quantity demanded and quantitycross outsupplied rises.

Answered: When a tax is levied on a good, what…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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When a tax is levied on a good, what happens to the market price and why?
Select one:
O a The market price rises because both quantity demanded and quantity
cross out
supplied falls.
O b. The market price falls because quantity supplied falls.
cross out
O. The market price falls because quantity demanded falls.
cross out
O d. The market price rises because both quantity demanded and quantity
cross out
supplied rises.

Expert Solution

Step 1

when the government intervenes the free market by imposing tax on the good, the tax increases the equilibrium price in the market for that good. Higher price decreases the quantity demanded by consumers and the producers reduces the supply due to higher price. This causes the higher equilbrium price with decreased quantity of good traded in the market.

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