Suppose in the long run, the government imposed a tax on the supply of a commodity. How does it affect the equilibrium quantity of commodity?
- The quantity of commodity will decrease.
- The quantity of commodity will increase.
- The quantity of commodity will remain same.
- The supply curve will shift rightwards which will decrease quantity of commodity.
Suppose in the long run, the government imposed a tax on the supply of a commodity. How does it affect the equilibrium quantity of commodity?
- The quantity of commodity will decrease.
- The quantity of commodity will increase.
- The quantity of commodity will remain same.
- The supply curve will shift rightwards which will decrease quantity of commodity.
Solution
Option 1 -> When tax is imposed, supply decreases, leading to lower equilibrium quantity.
Option 2 -> Tax increases production costs, discouraging supply, so quantity cannot increase.
Option 3 -> Tax affects market equilibrium by shifting supply curve, so quantity changes.
Option 4 -> Supply curve shifts LEFTWARD (not rightward) when tax is imposed.
Hence, Option 1: The quantity of commodity will decrease. -> When government imposes a tax on supply, it increases the cost of production for suppliers. This causes the supply curve to shift leftward (upward). At any given price, suppliers are now willing to supply less quantity. The leftward shift in supply leads to a new equilibrium with a higher price and a lower quantity traded in the market. Both in the short run and long run, the equilibrium quantity decreases as a result of the tax. -> correct
Related questions:
2025: 30 May Shift 1
2026: 31 May Shift 1
2025: 21 May Shift 1