Question

19. If the government gives each consumer a tax reduction equal to S600 (i.e. increase in income), what would you expect to happen to the equilibrium price oforanges? a) equilibrium price increases b) equilibrium price decreases c) equilibrium price stays the same d) equilibrium price change uncertain (could go up or down) 20. If the government gives each consumer a tax reduction equal to S600, what would you expect to happen to the equilibrium quantity of oranges? a) equilibrium quantity increases b) equilibrium quantity decreases c) equilibrium quantity stays the same d) equilibrium quantity change uncertain (could go up or down)

Answer 1

Ans19) the correct option is a) equilibrium price increases.

Ans20) the correct option is a) equilibrium quantity increases.

When there will be a tax reduction, consumers purchasing power will increase meaning demand increases whereas supply remains constant. Equilibrium price and equilibrium quantity will increase.