Refer to the Above Supply and Demand Graph

question 106

Multiple Choice

Refer to the above supply and demand graph.In the graph,point A is the current equilibrium level of output of this product and point B is the optimal level of output from society's perspective.S is the supply curve without a tax and S_t is the supply curve with a tax.One solution to this externality problem is to:

• A) give consumers a subsidy of the amount FG.
• B) give producers a subsidy of the amount AB.
• C) tax producers by the amount DE.
• D) tax consumers by the amount EF.

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Definitions:

Hourly Wage Rate

The amount of money paid for each hour of work.

Production Technology

Refers to the methods and processes used by businesses to manufacture goods and provide services.

Total Revenue

The overall amount of money generated by a firm from selling its goods and services, calculated as the unit price multiplied by the quantity sold.

Firms

Business organizations or entities that sell goods or services, usually in pursuit of profit.