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When an excise tax is imposed on the sellers in a market: i
When an excise tax is imposed on the sellers in a market:
i. an upward shift in the supply curve.
ii. a downward shift in the demand curve.
iii. deadweight loss.
a. i only
b. ii only
c. iii only
d. i and iii only
e. i, ii, and iii
Expert Solution
- When an excise tax is imposed on the sellers in a market d. i and iii only.
i. an upward shift in the supply curve. The tax makes it more expensive to produce each unit, which raises the marginal cost of production and, thus, causes the supply to decline. The decline in supply is exhibited by the leftward (upward) shift in the supply curve.
iii. deadweight loss. Dead-weight loss occurs whenever the total surplus is not maximized. With taxes, the total surplus is reduced because fewer units are traded.
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