Question

Suppose that a $4 per unit tax is imposed on the sellers of DVDs. The effect of the tax will be to a. ​shift the supply curve up by exactly $4 and the price paid by buyers will remain unchanged. b. ​shift the supply curve up by exactly $4 and the price received by sellers will rise by exactly $4. c. ​shift the supply curve up by exactly $4 and the price paid by buyers will rise by less than $4. d. ​shift the demand curve down by exactly $4 and the price paid by buyers will fall by exactly $4.

Answer 1

Answer:

C) ​shift the supply curve up by exactly $4 and the price paid by buyers will rise by less than $4.

Explanation:

A new tax will reduce the money received by the suppliers, which will result in a leftward shift of the supply curve. This means that the price of DVDs will increase at every level of quantity demanded. This will also decrease the total demand for DVDs since their price will increase.

Even though the tax is levied on the suppliers, both the suppliers and the consumers will suffer from it.