Question

Question 10 when an excise tax is imposed on sellers, this will cause the ________ curve to shift __________.

Answer 1

When an excise tax is imposed on sellers, this will cause the supply curve to shift up and to the left.

Excise duty is one of the six determinants of supply. They shift the supply curve to the left, reducing supply and raising the equilibrium price. The supply curve shifts until the vertical distance between the two curves equal the tax amount.

The effect of the tax on the supply and demand balance is to shift the quantity towards the point where the pre-tax demand minus the pre-tax supply equals the tax amount. A tax increases the price a buyer pays by less than the tax. Similarly, the price received by the seller will be lower, but less than the tax amount.

When a firm's profits increase, it will be more motivated to produce output, because more output means more profit. Therefore, as production costs fall, firms tend to supply larger quantities at a given price for their production. This can also be seen from the right shift of the supply curve.

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