Chapter 7, Problem 7AA

To determine

To choose: The term that best completes the given sentence.

Answer to Problem 7AA

The term that best completes the given sentence is ‘impose’.

Explanation of Solution

Production cost can be defined as the overall expenses that a firm has to incur in order to produce commodities and services.

Tax and production costs are directly associated with each other. It means that if the government imposes high taxes then the production cost of the commodities and services will rise because the firm has to pay taxes to a government which will reduce its profit. This will finally lead to a fall in the supply of commodities and services.

The answer is ‘impose’.

Economics Concept Introduction

Introduction:Primarily through the supply side, high marginal tax rates can deter employment, savings, expenditure and creativity, while special tax preferences can influence economic resource allocation.