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CA Foundation · Business Economics · Theory of Demand and Supply

A state government imposes a per-unit excise tax of ₹5 on the production of packaged juice. Which effect on the supply curve of juice is expected, other things remaining the same?

The supply curve shifts to the left. A per-unit excise tax raises the cost of producing each unit, so producers supply less at every price. This is a decrease in supply, not a movement along the curve, which happens only when the good's own price changes.

  1. ASupply curve shifts to the left because the cost of production risesCorrect
  2. BSupply curve shifts to the right because the government earns revenue
  3. CThere is a downward movement along the same supply curve
  4. DThere is an upward movement along the same supply curve

Explanation

A per-unit tax on producers raises the cost of supplying each unit, so at every price producers offer less. This is a decrease in supply, shown as a leftward (upward) shift of the curve. A movement along the curve would occur only if the product's own price changed, which is not the initial effect of the tax.

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