After an excise tax is imposed on a good or service,
A) the equilibrium price and quantity are unchanged
B) firms must charge a higher price for any particular quantity
C) firms must charge a lower price for any particular quantity
D) the equilibrium price and quantity will both increase
E) the equilibrium price and quantity will both decrease

Question

Quizplus · Accepted Answer

After an excise tax is imposed on a good or service, firms are required to pay tax to the government for each unit sold. In order to cover this cost, firms must charge a higher price for any particular quantity in order to maintain their profit margins. As a result, the equilibrium price for that good or service will increase, while the equilibrium quantity will decrease (although the magnitude of the changes will depend on the elasticity of demand and supply).

After an Excise Tax Is Imposed on a Good or Service