ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A government introduces a per-unit tax on producers of a good. Which describes the effect on the market diagram, other things equal?
The supply curve shifts left, or upward, so the equilibrium price rises and the quantity traded falls. A per-unit tax increases producers' costs, reducing the quantity they offer at each price, while the demand curve itself does not move.
- AThe demand curve shifts left, lowering price and quantity
- BThe supply curve shifts left (upward), raising equilibrium price and reducing quantityCorrect
- CThe supply curve shifts right, lowering equilibrium price
- DThe demand curve shifts right, raising price and quantity
Explanation
A per-unit tax raises producers' costs, so they supply less at each price: the supply curve shifts left or upward. Equilibrium price rises and quantity traded falls. Demand is not directly changed by a tax on producers.
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