Imagine the government imposes an excise tax on sellers of soft drinks containing more than 10% sugar. Which effect is most likely in the market for soft drinks?

Question

BlackTom AI · Accepted Answer

An excise tax on sellers raises the per-unit cost of supplying the taxed soft drinks, so the supply curve effectively shifts upward (or leftward), reducing quantity and raising the price consumers pay.

1. Relevant knowledge points and concepts
- An excise tax on sellers increases marginal cost per unit, which shifts the supply curve left (a decrease in supply).
- Equilibrium is where supply equals demand; shifting supply left raises equilibrium price and lowers equilibrium quantity.
- Tax incidence (who bears the burden) depends on elasticities, but quantity always falls with a positive per-unit tax.

2. Step-by-step reasoning
- Start with original supply S0 and demand D where S0 intersects D at (P0, Q0).
- Impose a per-unit tax t on sellers. For each quantity, sellers now need price P_s + t to supply the same Q, so the supply curve becomes S1 (left/up by t).
- The new intersection of S1 and D is at a higher consumer price Pc and lower quantity Qc. Sellers receive Ps = Pc - t.

3. Algebraic demonstration (intermediate steps)
- Let demand: P = c - dQ. Supply before tax: P = a + bQ.
- With tax t on sellers: P = a + bQ + t.
- New equilibrium: a + bQ + t = c - dQ -> (b + d)Q = c - a - t -> Q = (c - a - t)/(b + d).
- Since t > 0, Q falls compared to t = 0: Q(t) < Q(0). Consumer price Pc = c - dQ, which increases when Q falls; hence Pc rises.

4. Why the correct answer is correct
- Option c explicitly states a decrease in supply, leading to higher price and smaller quantity — exactly the standard outcome of an excise tax on sellers.

5. Why other options are incorrect
- a. Increase in supply is the opposite effect; taxes do not increase supply.
- b. Increase in demand is unrelated to a tax on sellers; demand would not rise because of a seller tax.
- d. “Contraction in supply leading to a smaller quantity” omits the higher price effect and is less precise; the expected outcome also includes a higher price.

6. Conclusion
- The correct choice is c. A decrease in supply leading to a higher price and smaller quantity of soft drinks consumed, which matches the provided answer.

Imagine the government imposes an excise tax on sellers of soft drinks containing more than 10% sugar. Which effect is most likely in the market for soft drinks?单项选择题

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