Suppose a Good Is Produced in a Constant-Cost Industry

question 117

Multiple Choice

Suppose a good is produced in a constant-cost industry.The market price is $4 and the equilibrium quantity is 20.After a tax is imposed on the good,the price rises to $5 and the equilibrium quantity falls to 18.The amount of the tax is

• A) $1 per unit sold.
• B) less than $1 per unit sold.
• C) more than $1 per unit sold.
• D) $0.50 per unit sold.

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Definitions:

Production Possibilities Frontier

A graph that shows the highest production potential for two products, based on available resources and various factors.

Means of Production

The resources—including land, labor, capital, and technology—used to produce goods and services in an economy.

Capital

Wealth in the form of money or assets, used in the production of more wealth.

Depression

An extended period of significant decline in economic activity across an economy, characterized by high unemployment, low consumer spending, and reduced industrial output.