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:

Market Price

The current price at which an asset or service can be bought or sold in the marketplace.

Black-Scholes

A mathematical model used for pricing European call and put options, considering factors like stock price, strike price, volatility, and time to expiration.

European Options

Financial derivatives that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on a specified expiration date.

American Options

Options that can be exercised at any time up to the expiration date.