The government imposes a unit excise tax on bubble gum. What happens as a result?

Question

Quizplus · Accepted Answer

When the government imposes a unit excise tax on bubble gum, the cost of producing bubble gum increases, which leads to a decrease in supply. This decrease in supply causes the market price to increase, which leads to a decrease in the quantity demanded. As a result, there is a bubble gum shortage, and the price increases further until it reaches a new equilibrium point where the quantity demanded equals the quantity supplied, but at a higher price. Therefore, the correct answer is C.

The Government Imposes a Unit Excise Tax on Bubble Gum