Question

Assume a market is in equilibrium. The government then imposes an excise tax on the sellers. The result will be a _______ shift of the supply curve, and the equilibrium price will _______.

(Hint: Draw a careful graph before answering this question.)

A. leftward, increase by the amount of tax

B. leftward, increase by an amount less than the tax

C. rightward, decrease by the amount of the tax

D. rightward, increase by the amount of the tax

Answer 1

The right answer is option B. When the government imposes an excise tax on the sellers, the result will be a leftward shift of the supply curve and, the equilibrium price will increase by an amount less than the tax because the burden of the tax is distributed among the consumers and the producer. After the tax is imposed, the price received by the seller falls as compared to the equilibrium price and the price paid by the consumer increases as compared to the equilibrium price.