If the government lowers the tax on steel sold in the US, and the tax is levied on producers, what is the most likely effect in the steel market?

• A. The supply of steel will increase, leading to a lower equilibrium price and higher quantity sold.
• B. The demand for steel will decrease, causing the equilibrium price to fall.
• C. The supply of steel will decrease, resulting in a higher equilibrium price.
• D. There will be no effect on the equilibrium price or quantity of steel.

Answer: (A)

Verified step by step guidance

1. Identify the type of tax and who it is levied on: The tax is on steel producers, so it affects the supply side of the market.
2. Understand the effect of lowering the tax on producers: A lower tax reduces the producers' cost of supplying steel, which typically causes the supply curve to shift to the right (increase in supply).
3. Analyze the supply curve shift: When supply increases, the supply curve shifts rightward, meaning at every price, producers are willing to supply more steel.
4. Determine the impact on equilibrium price and quantity: An increase in supply, with demand held constant, leads to a lower equilibrium price and a higher equilibrium quantity sold.
5. Conclude the most likely market outcome: The steel market will experience an increase in supply, a decrease in price, and an increase in quantity sold.