Suppose a market is in equilibrium at price P₀,and then an excise tax of t dollars per unit of the good is imposed.At a price of (P₀ + t)there will be excess ________ for the good unless the demand curve is ________. A)supply; horizontal B)supply; vertical C)demand; horizontal D)demand; vertical E)tax; unit elastic

Question

Quizplus · Accepted Answer

When an excise tax is imposed on a good, the supply curve shifts upward by the amount of the tax. As a result, the equilibrium price increases by less than the tax, so the quantity demanded and supplied both decrease. If the demand curve is perfectly vertical, the tax burden falls entirely on the consumers, and the quantity demanded falls to zero. Therefore, there will be excess supply (or a surplus) of the good at the new equilibrium price of (P₀ + t) unless the demand curve is perfectly vertical. So, the correct answer is B: supply and vertical demand curve.

Suppose a Market Is in Equilibrium at Price P0,and Then

Suppose a Market Is in Equilibrium at Price P₀,and Then