What effect would a new tax on producers likely have on the supply curve?

Question

BlackTom AI · Accepted Answer

Let’s break down what the question is asking. It asks about the effect of a new tax on producers on the supply curve and provides four options to evaluate.
Option 1: 'It would not affect the supply curve at all.' In general, a tax on producers increases production costs, which typically makes supplying goods less profitable at any given price. That change in costs shifts the supply curve, not leaves it unchanged, so this option is incorrect.
Option 2: 'It would shift the supply curve to the right.' A rightward shift would indicate that suppliers are willing to produce more at each price, usually due to a decrease in costs or an improvement in profitability. A tax on producers increases costs, not reduces them, so this option misstates the effect and is incorrect.
Option 3: 'It would increase demand.' Supply-side taxes affect the cost structure of producers and the quantity supplied, not the consumers’ willingness to buy at given prices. An increase in demand is a shift of the demand curve, not the supply curve, so this option is incorrect.
Option 4: 'It would shift the supply curve to the left.' A tax on producers raises production costs, making production less profitable at any price. This typically reduces quantity supplied, which is represented by a leftward shift of the supply curve on a standard supply-demand graph. This option aligns with the economic reasoning about supply and taxes and is therefore correct.
In summary, the tax on producers changes costs, causing a contraction in supply and a leftward shift of the supply curve; the other options describe scenarios that do not match how supply responds to increased production costs.

What effect would a new tax on producers likely have on the supply curve?

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What effect would a new tax on producers likely have on the supply curve?

View Explanation

Log in for full answers

Similar Questions

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Part D: An increase in the price of pizza sauce will cause a movement from point B on supply curve S2 to

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A student says “Supply of ice cream decreases with decreasing population”. How will you show this change in the market diagram?

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Select the correct answer about the figure above.

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