Question

Assuming a downward-sloping demand curve and an upward-sloping supply curve, which of the following will occur as a result of an increase in the sales tax on a good?

A. Supply will increase.
B. Demand will increase.
C. Quantity supplied will increase.
D. Quantity demanded will decrease.
E. The price paid by consumers will decrease.

Answer 1

Answer:

The correct answer is (D)

Explanation:

The point where demand and supply intersect is known as equilibrium. The equilibrium point is used to identify the equilibrium price and quantity demanded. Increase in sales tax will increase the overall price of a good. As there is a negative relationship between price and demand an increase in taxes will lead to a decrease in quantity demanded.