Which of the following quantities decreases in response to a tax imposed on a good?

• A. The equilibrium price received by sellers
• B. The equilibrium quantity traded in the market
• C. The government tax revenue
• D. The equilibrium price paid by buyers

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the effect of a tax on a market. When a tax is imposed on a good, it creates a wedge between the price buyers pay and the price sellers receive. This typically shifts either the supply curve upward (if tax is on sellers) or the demand curve downward (if tax is on buyers).
2. Step 2: Analyze how the equilibrium price received by sellers changes. Because sellers must pay the tax, the price they effectively receive after tax usually decreases compared to the original equilibrium price before the tax.
3. Step 3: Analyze how the equilibrium price paid by buyers changes. Buyers generally face a higher price after the tax is imposed, as part of the tax burden is passed on to them, so the price paid by buyers tends to increase.
4. Step 4: Consider the equilibrium quantity traded in the market. The tax increases the cost of the good, reducing the quantity demanded and/or supplied, which leads to a decrease in the equilibrium quantity traded.
5. Step 5: Understand government tax revenue. The government collects tax revenue equal to the tax rate multiplied by the quantity traded after the tax is imposed. Although the quantity decreases, the tax revenue is positive and depends on both the tax rate and the new equilibrium quantity.