Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 6 - Part II - Supply, Demand, and Government Policies - Quick Check Multiple Choice - Page 129: 3

Answer

a. a $1 per unit tax levied on producers of the good.

Work Step by Step

When consumers are being taxed, it is equivalent to increasing the price of the good. The extent to which the price increases will depend on the price elasticity of the good itself. This is called Tax Incidence. When price increases, quantity demanded will fall. Given a lower quantity demanded, seller will then adjust (reduce) the price they charge consumer correspondingly. Assuming the demand is perfectly price elastic, the producer will assume all tax levy which is $1 in this case.
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