Suppose there is an increase in excise d

CUET Preparation Today

Start Free Mocks

Home Questions MYBM5X2UGQ

Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Firms under Perfect Competition

Question:

Suppose there is an increase in excise duty of good 'A'. How it will affect the Supply Curve of Good A?

Options:

Supply Curve will shift to right

There will be a movement from a lower point to an upper point on the same supply curve

Supply curve will shift to left

There will be a movement from an upper point to a lower point on the same supply curve

Correct Answer:

Supply curve will shift to left

Explanation:

The correct answer is Option 3: Supply curve will shift to left

Excise duty is a tax imposed on the production or sale of a good. When the excise duty on Good A increases, it raises the cost of production for producers.
Higher production costs discourage producers from supplying the same quantity of the good at existing prices.
As a result, producers reduce the quantity supplied at each price level, leading to a decrease in supply.

The supply curve of Good A shifts to the left.
This indicates that at the same price levels, less quantity of Good A will be supplied than before.