Refer to the Graph Shown

question 61

Multiple Choice

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $25 and quantity equal to 100. As a result of a per-unit tax imposed by the government, the supply curve shifts from S₀ to S₁. The effect of the tax is to:

• A)raise the price consumers pay from $25 to $30.
• B)lower the price consumers pay from $25 to $15.
• C)raise the price sellers keep after paying the tax from $25 to $30.
• D)lower the price sellers keep after paying the tax from $25 to $20.

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Definitions:

Crowding-Out Effect

The phenomenon where increased government spending leads to a reduction in private sector spending and investment due to higher interest rates or other factors.

Government Spending

The total amount of public expenditure by a government, including spending on defense, education, public infrastructure, and welfare programs.

Private Investment

The expenditure on capital goods by private sector firms or individuals in order to generate future income or profits, excluding government spending.

Crowding-In Effect

An increase in private sector spending stimulated by federal budget deficits financed by U.S. Treasury borrowing.