Question

If the government taxes car producers, what will happen in the market for cars?a. The supply curve will shift to the leftb. The demand curve will shift to the rightc. There will be movement along the supply curve to the leftd. There will be a movement along the demand curve to the right

Answer 1

The correct answer is option a.

Explanation:

Suppose the government taxes the car producers. This will cause an increase in the cost of producing cars. As the cost of production increases, the firms will be able to supply less at the same price. This will lead to a decline in the supply. This will further cause the supply curve to shift to the left.

A subsidy, on the other hand, would have reduced the cost of production, causing an increase in supply, moving the curve to the right.