An excise tax levied on firms in a constant-cost competitive industry will:
A)increase output more in the short run than in the long run.
B)reduce output more in the long run than in the short run.
C)benefit consumers in the short run but harm them in the long run.
D)increase the product price more in the short run than in the long run.

Question

Quizplus · Accepted Answer

In a constant-cost competitive industry, firms cannot pass on the excise tax to consumers in the form of higher prices without losing a portion of their market share to other firms. As a result, the firm's supply curve will shift upward by the amount of the tax, which will lead to a reduction in output and employment in the short run. However, in the long run, firms will exit the industry due to lower profits, causing the supply curve to shift back to its original position. This means that the output and employment will be reduced more in the long run than in the short run.

An Excise Tax Levied on Firms in a Constant-Cost Competitive