Question:
Given a downward sloping demand curve and an upward sloping supply curve, a unit tax on a commodity will
(1) raise producer surplus.
(2) raise consumer surplus.
(3) cause a shifting of the supply curve to the right.
(4) raise the price by more than the tax.
(5) raise the price by less than the tax.
Correct Answer:
(5)
Answer Explanation:
When demand is downward sloping and supply is upward sloping, the tax burden is shared between consumers and producers. Therefore, the market price paid by consumers will increase, but by an amount less than the total per-unit tax.
Topic: Taxation Year: 2022
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