Suppose in the long run, the government imposed a tax on the supply of a commodity. How does it affect the equilibrium quantity of commodity?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The quantity of commodity will decrease.
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When the government imposes a tax on the supply of a commodity (such as an excise duty or production tax), it increases the cost of production for sellers.
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As a result, producers reduce the quantity supplied at each price level.
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In the long run, the supply curve shifts leftward (upward), leading to a higher equilibrium price and a lower equilibrium quantity.
Thus, the equilibrium quantity of the commodity decreases in response to the tax.