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

Question

BlackTom AI · Accepted Answer

An excise tax is a per‑unit tax on producers, so it raises producers’ marginal cost and shifts the supply curve inward (leftward).

1) Relevant knowledge points and concepts
- Excise tax: a specific (per‑unit) tax levied on sellers/producers.  
- Supply curve shift: an increase in producers’ costs shifts the supply curve left (or upward) because at every market price producers supply less.  
- Movement along demand curve vs. shift of demand: a change in price causes a movement along the fixed demand curve (expansion if quantity demanded rises, contraction if it falls). A shift of the demand curve requires a non‑price determinant (income, tastes, etc.).

2) Complete reasoning (step by step)
- The government imposes a higher excise tax on wine producers.  
- This raises producers’ costs per bottle, so for any given market price producers will supply fewer bottles → supply curve shifts left (decrease in supply).  
- The new supply curve intersects demand at a higher market price (price paid by buyers rises) and a lower equilibrium quantity.  
- Because price rises and quantity falls, consumers move along the unchanged demand curve to a lower quantity demanded (a contraction along the demand curve).

3) Intermediate steps / comparative‑statics
- Initial equilibrium: (P0, Q0).  
- After tax: supply shifts left → new equilibrium (P1 > P0, Q1 < Q0).  
- Buyers pay P1, sellers receive P1 minus tax; quantity traded falls from Q0 to Q1.

4) Why the correct answer is correct
- The tax directly affects producers’ costs → supply shift left.  
- The decreased equilibrium quantity is a movement along the demand curve (contraction) because the demand schedule itself did not change.

5) Why other options are incorrect
- (a) Supply curve would not shift right (that implies lower costs/increased supply). Expansion along demand is wrong because quantity demanded falls, not rises.  
- (c) and (d) Both claim shifts in demand; an excise tax on producers does not change demand determinants, so demand does not shift.

6) Conclusion
Therefore the correct outcome is a shift in the supply curve to the left and a contraction along the demand curve, matching answer b.

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