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 increases sellers’ per-unit cost, shifting the supply curve upward/left and thus reducing supply.

1) Relevant knowledge points and concepts
- An excise tax imposed on sellers raises the sellers’ marginal cost per unit; this is represented as a leftward (or upward) shift of the supply curve.
- Equilibrium in a competitive market is where demand equals supply; shifting supply left raises the price buyers pay and reduces the equilibrium quantity.
- Tax incidence: the burden is shared between buyers (higher price paid) and sellers (lower net price received), depending on elasticities.

2) Step‑by‑step reasoning
- Start from initial equilibrium where demand = supply.
- The tax t per unit increases the minimum price sellers require for each quantity, so the supply schedule becomes less favorable at every quantity.
- With unchanged demand, the new intersection of demand and the shifted supply occurs at a higher buyer price and smaller quantity.

3) Calculation / algebraic illustration (all intermediate steps)
- Let demand be P = A − BQ and pre‑tax supply be P = C + DQ.
- Initial equilibrium: A − BQ* = C + DQ* → Q* = (A − C)/(B + D).
- With a tax t on sellers, supply becomes P = C + DQ + t.
- New equilibrium: A − BQ_t = C + DQ_t + t → Q_t = (A − C − t)/(B + D).
- Change in quantity: ΔQ = Q_t − Q* = −t/(B + D) < 0, so quantity falls.
- Buyer price rises to P_b = A − BQ_t (higher than before); seller net price = P_b − t (lower than pre‑tax revenue per unit).

4) Why the correct answer is correct
- Option (a) explicitly states a decrease in supply leading to a higher price and smaller quantity — exactly the standard result of a per‑unit excise tax on sellers.

5) Why the other options are incorrect
- (b) “A contraction in supply leading to a smaller quantity” omits the important effect on price; it is incomplete and less precise than (a).
- (c) An increase in demand is wrong because the tax affects sellers’ costs, not buyers’ willingness to buy.
- (d) An increase in supply is the opposite of the expected effect; a tax raises costs and reduces supply, not increases it.

6) Conclusion
The correct outcome is a decrease in supply that produces a higher price and smaller quantity consumed — answer (a).

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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