Suppose the Market Demand Curve Is Perfectly Elastic in an Increasing-Cost

question 16

Multiple Choice

Suppose the market demand curve is perfectly elastic in an increasing-cost industry. If an output tax of t per unit is imposed on all producers of the good, what happens to the market equilibrium outcome?

• A) The price paid by buyers increases and output declines.
• B) The price paid by buyers does not change and output decrease.
• C) The price paid by buyers and output increase.
• D) The price paid by buyers and output decrease.

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