If an excise tax is imposed on a good or service,
A) the supply curve shifts upward
B) the supply curve shifts downward
C) the price paid by consumers decreases
D) the net price received by sellers increases
E) the quantity produced and sold increases

Question

Quizplus · Accepted Answer

An excise tax is a tax on a specific good or service, which increases the cost of production for the firm producing the good or service. As a result, the supply curve shifts upward, leading to a higher equilibrium price and a lower equilibrium quantity produced and sold. The net price received by sellers may increase due to the tax being passed onto consumers in the form of higher prices. The price paid by consumers will also increase due to the tax. Quantity produced and sold will decrease due to the decrease in demand caused by the tax.

If an Excise Tax Is Imposed on a Good or Service