Refer to the above supply and demand graph. In the graph, point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective. S is the supply curve without a tax and St is the supply curve with a tax. One solution to this externality problem is to:
A. tax producers by the amount DE.
B. give producers a subsidy of the amount AB.
C. give consumers a subsidy of the amount FG.
D. tax consumers by the amount EF.
Answer: A
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A. expansionary; lower; potential B. expansionary; higher; potential C. recessionary; lower; potential D. recessionary; lower; lower
The deadweight costs of an export tariff have similar interpretations to those of an import tariff
Indicate whether the statement is true or false
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Supply and demand together determine the price and quantity of a good sold in a market
a. True b. False Indicate whether the statement is true or false