Texas Real Estate Brokerage Sales Apprentice Education (SAE) Practice Exam

How can the government increase the quantity demanded of a good or service?

1. By controlling prices

2. By granting tax incentives

3. By reducing tariffs

4. By increasing supply

The correct answer is: By granting tax incentives

Granting tax incentives is a powerful way for the government to increase the quantity demanded of a good or service. Tax incentives can take many forms, such as deductions or credits that lower the effective cost a consumer must pay. When consumers face lower costs due to these incentives, they are more likely to purchase more of the incentivized goods or services, thus increasing the overall demand. The effectiveness of tax incentives lies in their ability to make products more affordable, encouraging consumers to buy beyond what they might have without the incentive. This adjustment in consumer behavior can lead to higher sales volumes and potentially stimulate production as businesses respond to increased demand. In the context of the other options, controlling prices might create a temporary effect but can lead to shortages if the price ceiling is set below the equilibrium level. Reducing tariffs can encourage imports and increase supply, but it doesn’t directly change the demand curve. Increasing supply alone does not ensure that people will want to buy more unless it is accompanied by factors that influence consumer interest, such as reduced prices or increased quality. Each of these other options has its own mechanics and impacts on the market, but granting tax incentives specifically focuses on enhancing consumer purchasing power, making it a direct method to boost demand.