The government imposes a new tax on fast food businesses (to be paid by the busi

Question

The government imposes a new tax on fast food businesses (to be paid by the businesses) and healthier food options become more popular with customers.

Check the answers below that reflect the changes in the market.

1)The equilibrium quantity of fast food is likely to fall

2) The equilibrium price is difficult to determine and could fall or increase or remain the same.

3)The equilibrium quantity of fast food is likely to rise

4)The demand for fast food is likely to fall because the price of the fast food rose

5)The supply of fast food is likely to fall as production cost rises

6)The demand for fast food is likely to fall

1)At a price of $10, there would be a surplus of 300 units

2)At a price of $10, there would be a shortage of 300 units

3)The equilbrium quantity in this market is 600

4)At a price of $4, there would be a surplus of 200 units

5)The equilbrium price in this market is $8

Explanation / Answer

Question 1

If government imposes a new tax on fast food business then such tax will increase the cost of production and would reduce profit margin of fast food businesses and will compel them to reduce production and supply.

So, the supply of fast food is likely to fall as production cost rises.

If healthier food options become more popular with customers then they will reduce their purchase of fast food.

So, the demand for fast food is likely to fall.

When both demand and supply decreases, equilibrium quantity tends to decrease.

So, the equilibrium quantity of fast food is likely to fall.

However, impact on equilibrium price is uncertain.

So, the equilibrium price is difficult to determine and could fall or increase or remain the same.

Hence, the correct answer is the option (1), (2), (5), and (6).

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