With a Downward Sloping Demand Curve and an Upward Sloping

question 171

Multiple Choice

With a downward sloping demand curve and an upward sloping supply curve for a product, placing an excise tax on this product will:

• A)increase equilibrium price and quantity.
• B)decrease equilibrium price and quantity.
• C)decrease equilibrium price and increase equilibrium quantity.
• D)increase equilibrium price and decrease equilibrium quantity.

---

Definitions:

Willingness to Pay

The maximum amount an individual is prepared to spend for a good or service, reflecting the value they assign to it.

Consumer Surplus

The difference as marked by what consumers are prepared to spend on a good or service versus the actual payment made.

Market Demand

The total quantity of a good or service that all consumers in a market are willing and able to purchase at various prices.

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit.