What typically happens to the equilibrium quantity of a good when a tax is imposed on it?

When a tax is imposed on a good, it generally leads to an increase in the price that consumers pay and a decrease in the price that producers receive for that good. This discrepancy creates a wedge between the two prices, resulting in a reduction in the quantity demanded by consumers as they face a higher effective price. At the same time, producers may limit the quantity they supply because of the lower effective price they receive, reducing their incentive to produce more of the good.

As a consequence, the overall equilibrium quantity—the point at which the quantity demanded by consumers equals the quantity supplied by producers—shifts to a lower level. This occurs because the higher consumer prices diminish demand while the lower prices received by producers discourage supply, aligning to a new equilibrium point where the fewer transactions occur in the market. Therefore, the imposition of a tax typically results in a decrease in the equilibrium quantity of the taxed good.