In a market with a downward-sloping demand curve and an upward-sloping supply curve, a law requiring sellers to pay the government a tax of $1.00 per pack on cigarettes has the effect of:
A) shifting the supply curve to the right and increasing the price buyers pay by $1.00.
B) shifting the demand curve to the right and increasing the price buyers pay by $1.00.
C) shifting the supply curve to the left and increasing the price buyers pay by less than $1.00.
D) shifting the demand curve to the left and increasing the price buyers pay by less than $1.00.

Question

Quizplus · Accepted Answer

The tax increases the cost of production for sellers, which causes the supply curve to shift to the left. This results in a higher equilibrium price for buyers, but the price increase will be less than $1.00 because some of the tax burden will be absorbed by the sellers. The demand curve will not shift because the tax does not directly affect buyers' willingness to buy.

In a Market with a Downward-Sloping Demand Curve and an Upward-Sloping