The Difference Between a Tax and a Subsidy Is That

question 17

Multiple Choice

The difference between a tax and a subsidy is that when the government places a tax on a good,it ________ the equilibrium price and ________ the equilibrium quantity,whereas when the government places a subsidy on a good,it ________ the equilibrium price and ________ the equilibrium quantity.

• A) increases; decreases; decreases; increases
• B) increases; increases; decreases; decreases
• C) decreases; decreases; increases; increases
• D) decreases; increases; increases; decreases
• E) increases; does not change; does not change; increases

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Definitions:

Marginal Product

The incremental output produced by adding one more unit of a specific input while holding other inputs constant.

Wage Rate

The wage rate is the amount of money paid for a specific quantity of labor or service, often expressed per hour, day, or piece.

Purely Competitive

A market structure characterized by a large number of firms producing homogeneous products with no single firm influencing the market price or supply.

Variable Input

An input in the production process that changes in quantity with variations in the level of output.