Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.

Question

Quizplus · Accepted Answer

When a tax is imposed on the supply of a good, the supply curve shifts leftward, leading to a higher equilibrium price. However, the price increase is typically less than the full amount of the tax because the burden of the tax is shared between producers and consumers, depending on the relative elasticities of supply and demand.

Given a Downward Sloping Demand Curve, a Tax on the Supply