An increase in a excise tax imposed on wine producers is likely to result in

Question

BlackTom AI · Accepted Answer

An excise tax increases producers’ per-unit cost, so the supply curve shifts left (a decrease in supply).

1. Relevant concepts
- Excise tax: a per-unit tax on producers raises their marginal/average cost.
- Supply curve shift: an increase in production cost shifts the supply curve leftward (less quantity supplied at every price).
- Movement along demand: when the supply curve shifts left, the market equilibrium price rises and equilibrium quantity falls; this lower quantity demanded is a contraction (a movement up along the demand curve), not a shift of the demand curve.

2. Step-by-step reasoning
- Initially market equilibrium is at price P0 and quantity Q0 where supply S0 meets demand D.
- Imposing an excise tax t per unit increases producers’ cost, so the supply curve becomes S1 (left of S0).
- At the original price P0, quantity supplied falls (excess demand), so the market moves to a new equilibrium with higher price P1 and lower quantity Q1.
- Consumers respond to the higher equilibrium price by buying less, which is represented as a movement along (up) the unchanged demand curve — a contraction in quantity demanded.

3. Intermediate (symbolic) steps
- S0 → S1 (leftward shift) because cost +t
- Equilibrium: (P0, Q0) → (P1 > P0, Q1 < Q0)
- Demand curve D remains in place; the change in quantity demanded is a movement along D, not a shift.

4. Why the correct answer is correct
- The tax directly affects producers’ costs and so shifts supply left. The resulting price increase and lower quantity is shown as a contraction (movement) along the demand curve. This exactly matches option d.

5. Why the other options are incorrect
- a and b: these claim a shift in the demand curve; a producer excise tax does not directly shift demand (demand depends on tastes, income, prices of related goods), so these are wrong.
- c: claims supply shifts right (increase); an excise tax raises costs, so supply cannot shift right — it shifts left. Also c mentions an expansion along demand, but quantity actually contracts.

6. Conclusion
The correct choice is d. a shift in the supply curve to the left and a contraction along the demand curve. This matches the provided answer.

An increase in a excise tax imposed on wine producers is likely to result inSingle choice

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