If the government increases the excise tax on a gallon of gasoline it can be expected that the supply curve to shift rightward, quantity demanded to fall, and price to rise

Economics Dec 08, 2020

If the government increases the excise tax on a gallon of gasoline it can be expected that the supply curve to shift rightward, quantity demanded to fall, and price to rise.

a. True

b. False

Expert Solution

This statement is false

Increase in excise tax reduces the overall average cost of producing goods. As a result, profit margins of producing these goods would fall. It would make a leftward shift in the supply curve due to a reduction in the quantity supplied. Whereas on the demand side, demand would also fall as the price has risen up.

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