Suppose there is an increase in excise duty of good 'A'. How it will affect the Supply Curve of Good A?
Answer & explanation
Correct answer: option 3
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.
Effect on the Supply Curve:
- 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.