If an excise tax is imposed on shoes,
A) government tax revenue will fall
B) the market price of shoes will decrease
C) the supply curve will shift downward
D) the equilibrium quantity demanded will decrease
E) the equilibrium quantity supplied will increase

Question

Quizplus · Accepted Answer

If an excise tax is imposed on shoes, the cost of production of shoes for the shoe manufacturers will increase. This will lead to an increase in the supply price of shoes. As a result, the supply curve will shift upward which leads to a decrease in the equilibrium quantity demanded of shoes, because the consumers will now have to pay more for the same pair of shoes. The equilibrium quantity supplied of shoes may or may not increase, depending on how much the increase in supply price affects the shoe manufacturers' willingness and ability to supply more shoes. In any case, the market price of shoes will increase due to the imposed excise tax.

If an Excise Tax Is Imposed on Shoes