Country Y is a major producer of cocoa beans. The government introduces a new tax on cocoa production to raise revenue. Which combination correctly shows the effects on the cocoa market?

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Question

Country Y is a major producer of cocoa beans. The government introduces a new tax on cocoa production to raise revenue. Which combination correctly shows the effects on the cocoa market?

Accepted Answer

Supply decreases; price rises; quantity traded falls — Award 1 mark for identifying that a production tax increases costs for suppliers, shifting the supply curve to the left. This results in a higher equilibrium price and lower equilibrium quantity. B is incorrect as taxes increase, not decrease, costs. C is incorrect as a production tax affects supply, not demand directly. D is incorrect for the same reason.

Answer

Demand decreases; price falls; quantity traded falls

Answer

Supply decreases; price rises; quantity traded falls

Answer

Supply increases; price falls; quantity traded rises

Answer

Demand increases; price rises; quantity traded rises

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