Question

suppose the canadian government has decided to place an excise tax of $20 per tire on producers of automobile tires. excise taxes are also called sales or commodity taxes. previously, there was no excise tax on automobile tires. as a result of the excise tax, producers of tires, such as bridgestone and michelin, are going to alter their tire prices. the graph illustrates the demand and supply curves for automobile tires before the excise tax. please shift the appropriate curve or curves on the graph to demonstrate the new equilibrium.

Answer 1

In order to determine the effect of the tax on the demand and supply graph, please check the attached image.

A tax is a form of transfer to wealth from businesses to the government. Taxes increase the price of goods and services. As a result of the tax levied on the producers of automobile tires, the cost of making tires would increase. This would make producing tires more expensive.

As a result of the increase in the cost of making tires, the production of tires would fall. As a result, there would be a leftward shift of the supply curve. This would lead to a rise in equilibrium price and a decrease in equilibrium quantity.

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