When a tax is imposed on some good,what tends to happen to consumer prices and producer prices?

Question

Quizplus · Accepted Answer

When a tax is imposed on some good, the cost of production increases for the producer, as they have to pay the tax. The producer, therefore, will increase the price of the good to maintain their revenue. As a result, the consumer price of the good will increase. However, since the price is higher, the demand for the good will decrease, leading to a decrease in the quantity demanded. Therefore, the producer may reduce the price to sell the product. However, there will still be a gap between the producer price and consumer price, with the producer price being higher than before the tax was imposed.

When a Tax Is Imposed on Some Good,what Tends to Happen