How Does The Imposition Of An Excise Tax On A Good Affect Its Market Equilibrium? (Correct answer)

How does the imposition of an excise tax on a good affect its market​ equilibrium? B. Equilibrium quantity​ decreases, and equilibrium price decreases.

How does an excise tax affect the price of good?

  • Assuming that Good A is a homogenous good, in the absence of taxation, the equilibrium price is P 0, and the equilibrium quantity is Q 0. If the government decides to impose an excise tax of $X, the owners of Good A will only supply the quantity demanded at a price of P 1 + $X.

How does the imposition of a tax affect a market?

The imposition of the tax causes the market price to increase and the quantity demanded to decrease. Because consumption is elastic, the price consumers pay doesn’t change very much. Because production is inelastic, the amount sold changes significantly.

How does excise tax affect business?

Excise taxes create a wedge between the price the final consumer pays and what the producer receives. An excise can either raise the total price (inclusive of the excise tax) consumers pay or reduce the business revenue available to compensate workers and investors.

When the government imposes an excise tax in a market for a product how do we know which curve supply or demand to shift to show the impact of the tax?

Question: Question 3 1 pts When the government imposes an excise tax in a market for a product, how do we know which curve (supply or demand) to shift to show the impact of the tax? O The supply curve will shift if producers bear the legal incidence of the tax.

What effect does an increase in excise tax have on the supply curve of the product?

What effect does an increase in excise tax have on supply curve of product? The supply curve shifts to the left. (As profit falls due to rise in cost.)

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How a tax on a good affects the price of the good and the quantity sold?

A tax on a good raises the price buyers pay, lowers the price sellers receive, and reduces the quantity sold. When a good is taxed, the side of the market with fewer good alternatives cannot easily leave the market and thus bears more of the burden of the tax.

Do taxes usually increase the supply of a good or reduce the supply?

Taxes reduce the supply of a product. Taxes are considered as a cost to the firm and an increase in cost reduces the supply of a product.

How does excise taxes affect demand and supply?

Excise Tax Imposed on Consumers If excise tax is imposed on consumers, the consumer’s demand for Good A will decrease. The difference between P2 and P1 is the amount of excise tax that is imposed. It is also the amount the demand curve shifts from D to D1.

What is the role of excise tax in market stability?

In the short run, an excise tax increases the price of the product, albeit by less than the full amount of the tax, and the price burden is shared by both the producers and the consumers. The exact effect depends on the elas- ticities of demand and supply for the product.

Are excise taxes regressive?

How Regressive Are Excise Taxes and Tariffs? Excise taxes are particularly regressive. Households in the lowest one-fifth by income faced an average federal excise tax rate that is nine times greater than the average excise tax rate faced by the top 1 percent of households.

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What are the main purposes for the imposition of excise tax?

Excise taxes are most important to promote health because they are uniquely applied to these products and thus will have a greater impact on relative prices than will taxes applied to a broader range of goods and services.

How does imposition of tax by government affect the equilibrium price and quantity of a good?

In an equilibrium, quantity demanded equals quantity supplied at a particular price for the product. When the tax is imposed by the government in the market, it is obvious that the tax imposed has an impact on the equilibrium and tends to establish a new equilibrium with changes in price and quantity.

How is excise tax calculated in the Philippines?


  1. Specific Tax = No. of Units/other measurements x Specific Tax Rate.
  2. Ad Valorem Tax = No. of Units/other measurements x Selling Price of any specific value per unit x Ad Valorem Tax Rate.

How does an excise tax increase production costs?

An excise tax increases production costs by adding an extra cost for each unit sold. Subsidies will decrease the costs of production and therefore increase quantity supplied.

What is the effect on tax revenue if the government increases the excise tax on a product that has an elastic demand?

The more elastic the supply curve, the easier it is for sellers to reduce the quantity sold, instead of taking lower prices. In a market where both the demand and supply are very elastic, the imposition of an excise tax generates low revenue.

What causes an increase in supply?

Essentially, a change in supply is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price. A change in supply can occur as a result of new technologies, such as more efficient or less expensive production processes, or a change in the number of competitors in the market.

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