Question

A cold summer has reduced the demand for beer; at the same time a tax is placed on alcohol. What can we say about the equilibrium price and quantity of alcohol?

A Equilibrium price rises, equilibrium quantity falls
B Equilibrium price falls, equilibrium quantity is unknown
C We cannot say what will happen to equilibrium prices but know that equilibrium quantity will fall
D We cannot say what will happen to equilibrium prices or equilibrium quantity

Answer 1

A Equilibrium price rises, equilibrium quantity falls