ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A government introduces a new tax on a product, and nothing else changes. Which of the following describes the effect on the supply curve for that product?
The supply curve shifts to the left. A new tax raises the cost of producing each unit, so suppliers offer less at every price. A movement along the curve would only occur if the product's own price changed, which is not the original cause here.
- AThe supply curve shifts to the left because costs of production riseCorrect
- BThe supply curve shifts to the right because producers earn less per unit
- CThere is a movement down along the existing supply curve
Explanation
A tax on producers increases the cost of supplying each unit, so at every price less is supplied and the supply curve shifts left. A movement along the curve is caused only by a change in the product's own price, not by a cost change.
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