Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold.If the demand curve is downward-sloping and the supply curve is upward-sloping:

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Quizplus · Accepted Answer

When the government imposes an excise tax, the price paid by consumers will increase, while the price received by suppliers will decrease. The actual amount of the price increase for consumers will depend on the elasticities of both the supply and demand curves. If demand is relatively elastic, then consumers will be able to find substitutes for the higher-priced sweaters and the price increase will be less than the tax (in this case $10). Therefore, the price of sweaters will increase by less than $10.

Suppose the Government Imposes a $10 Excise Tax on the Sale