Which of the following is a direct effect of a tax imposed on a market?

• A. A decrease in the equilibrium quantity traded
• B. An increase in consumer surplus
• C. A reduction in deadweight loss
• D. A shift of the supply curve to the right

Answer: (A)

Verified step by step guidance

1. Understand that a tax imposed on a market typically increases the cost of either producing or purchasing a good, depending on whether it is a tax on producers or consumers.
2. Recognize that this increase in cost causes the supply curve to shift upward (or to the left), reflecting higher prices needed to supply the same quantity, or equivalently, a decrease in supply at each price.
3. Analyze how the new supply curve intersects with the demand curve to find the new equilibrium price and quantity; the equilibrium quantity traded will decrease because the higher price reduces quantity demanded and/or quantity supplied.
4. Recall that consumer surplus generally decreases when a tax is imposed because consumers pay a higher price and buy less, so an increase in consumer surplus is not a direct effect of a tax.
5. Understand that deadweight loss arises due to the tax but is not reduced by it; instead, deadweight loss increases because the tax causes a loss of mutually beneficial trades, and the supply curve does not shift to the right as a direct effect of a tax.