An excise tax on cigarettes
A) will cause both the market price and quantity to increase
B) will cause both the market price and quantity to fall
C) will cause the market price to rise and the market quantity to fall
D) will cause the market price to fall and the market quantity to rise
E) None of the above.

Question

Quizplus · Accepted Answer

An excise tax on cigarettes is a tax on the producer of cigarettes that ultimately gets passed on to the consumer in the form of higher prices. As the price of cigarettes increases, the demand for cigarettes will decrease, resulting in a decrease in the market quantity. Therefore, the market price will rise and the market quantity will fall.

An Excise Tax on Cigarettes