Question

A unit tax of​ $1 has been levied on a good. The equilibrium price of the good will most likely A. remain unchanged. B. decrease by​ $1. C. increase by an amount less than​ $1. D. increase by​ $1.

Answer 1

Answer:

C. increase by an amount less than​ $1.

Explanation:

Tax imposition leads to increase in equillibrum price. When taxes are increased it result in a shift to the left of supply, that means supply reduces. Shift is from S1 to S2.

Equillibrum changes from M to M1.

Tax is represented by PA to PC, and this is greater than the change in equillibrum price (PA to PB).

So in this instance if the tax imposed is $1, there will be an increase in equillibrum price that will be less than $1.

Find attached the diagram used to illustrate effect of tax on equillibrum price.

Answer 2

Answer: The equilibrium price is most likely to "DECREASE BY $1". Option c is the most correct option.

Explanation: A unit tax of $1 is the tax on the sales of the unit. In a supply demand curve, an increase in the sales tax will cause the curve to shift inwardly, thereby showing a decrease in the equilibrium price of the curve.

Equilibrium price is the point where the amount suppllied is equal to the consumers demand at a stable price.

For $1 unit tax to be levied on the goods, it will increase the price of the goods by $1, which will reduce supply by $1, therefore the equilibrium price will decrease by $1 to adjust itself on the new changes.