Refer to the Graph Shown

question 165

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)give government tax revenues of $100.
• B)give government tax revenues of $400.
• C)reduce producer surplus by $375.
• D)reduce producer surplus by $400.

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Definitions:

Monetary Rule

A guideline for the monetary policy stating that the central bank should aim at regulating the money supply to maintain stable prices, output, and employment.

Rational Expectations

An economic theory proposing that individuals make decisions based on their best forecast using all available information, predicting future events with some degree of accuracy.

Federal Reserve

The central bank of the United States, responsible for monetary policy.

Life Expectancy

The average period that an organism is expected to live, based on statistical analysis.