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Question
How does the imposition of a unit tax affect the supply curve of a firm?
How does the imposition of a unit tax affect the supply curve of a firm?
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Solution
When there is an increase in unit tax on the production of goods by the government, the unit cost of production will rise and consequently, the firm would supply less than before at the given price. The supply would decrease implying that the supply curve would shift to the left.
When there is an increase in unit tax on the production of goods by the government, the unit cost of production will rise and consequently, the firm would supply less than before at the given price. The supply would decrease implying that the supply curve would shift to the left.
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