Question

A sales tax imposed on sellers of a good

• A. decreases the demand and shifts the demand curve rightward.
• B. decreases the supply and shifts the supply curve leftward.
• C. decreases both the demand and the supply and shifts both the demand and supply curves leftward.
• D. decreases the supply and shifts the supply curve rightward.
• E. has no effect on either the demand or the supply.

Answer 1

Answer;

Option B is the correct answer.

A tax on sellers of a good will results decrease in supply, the supply curve shift to the left. This is shown in the following figure;

In the above figure, x-axis shows quantity and y-axis shows price. D is the demand curve and S is the supply curve. As the result of sale tax imposed on sellers of a good, the supply decreases, the supply curve shift to the left. The price increases from p to p+tax and quantity reduces from q to q1.