When the government imposes a per-unit tax on a product that has a downward-sloping demand curve and an upward-sloping supply curve,the price consumers pay for the product
A) increases by the amount of the per-unit tax.
B) increases by less than the amount of the per-unit tax.
C) decreases by the amount of the per-unit tax.
D) decreases by less than the amount of the per-unit tax.
E) remains unchanged.

Question

Quizplus · Accepted Answer

When a per-unit tax is imposed on a product with a downward-sloping demand curve and an upward-sloping supply curve, the price consumers pay for the product increases, but by less than the amount of the per-unit tax. This is because the tax shifts the supply curve upwards, causing the equilibrium price to increase. However, because the demand curve is downward-sloping, consumers are less willing to pay the higher price, resulting in a decrease in quantity demanded. As a result, the price increase is less than the amount of the per-unit tax.

When the Government Imposes a Per-Unit Tax on a Product