The general equilibrium effects of an excise tax on a commodity which would then be used to fund improvements to our national parks:
A)would probably raise the price of the commodity and raise the price of labor in the national park system.
B)would probably lower the price of the commodity and raise the price of labor in the national park system.
C)would probably raise the price of the commodity and raise the price of labor in the economy as a whole.
D)would probably raise the price of the commodity and lower the price of labor in the economy as a whole.

Question

Quizplus · Accepted Answer

An excise tax on a commodity is likely to raise its price, as the tax is passed on to consumers. This would lead to an increase in the cost of inputs for the national park system, such as food and other supplies. Therefore, the price of labor in the national park system would also have to increase in order to maintain the same level of service quality. Although there may be some short-term fluctuations, the general equilibrium effects of the excise tax on the economy as a whole are likely to be relatively small. An excise tax on a commodity would increase the price of the commodity, which would likely result in a decrease in demand and a decrease in supply. As a result, the price of labor in the national park system would increase as there is an increase in government revenue due to the tax, which is then used to fund improvements to our national parks. In addition, there could be a spillover effect on the general economy as a whole, resulting in an increase in the price of the commodity and an increase in the price of labor.

The General Equilibrium Effects of an Excise Tax on a Commodity