Final answer:
Characteristics of taxes include discouraging production by raising costs, leading to a decrease in supply and a leftward supply curve shift. Subsidies encourage production by reducing costs, increasing supply, and shifting the supply curve to the right. In perfectly competitive markets, both taxes and subsidies have significant effects on market dynamics.
Step-by-step explanation:
To determine whether the items are characteristics of taxes, subsidies, or both, we must understand how each impacts the market in the context of perfect competition. A tax is a financial charge imposed on a product, individual, or organization by the government, which can affect market price, supply, and demand. A subsidy is financial assistance provided by the government to encourage or support a particular economic activity.
Taxes generally discourage production and consumption of the taxed product because they raise the cost of production, leading to a decrease in supply. This typically causes the market to produce a lower quantity at every given price, causing a shift of the supply curve to the left.
Subsidies, in contrast, encourage production and consumption. They achieve this by reducing the cost of production, which leads to an increase in supply, as firms are willing to produce more at every given price when their costs are lower. This causes the supply curve to shift to the right.
When considering perfect competition, any element that distorts the equilibrium price, such as taxes or subsidies, can shift the supply curve and affect the market dynamics significantly.