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Within the supply-and-demand model, a tax collected from the buyers of a good shifts the a. supply curve upward by the size of the tax per unit b. demand curve downward by the size of the tax per unit c. supply curve downward by the size of the tax per unit d. demand curve upward by the size of the tax per unit

Ask by Allan Norton. in the United States
Feb 03,2025

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The tax shifts the demand curve downward by the amount of the tax per unit.

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In the supply-and-demand model, when a tax is collected from the buyers of a good, it effectively increases the price that buyers have to pay for the good. This change in price affects the demand for the good. Here's the reasoning for each option: a. **Supply curve upward by the size of the tax per unit**: This is incorrect because the tax is imposed on buyers, not suppliers. b. **Demand curve downward by the size of the tax per unit**: This is correct. The tax increases the effective price that buyers pay, which reduces the quantity demanded at any given price, shifting the demand curve downward. c. **Supply curve downward by the size of the tax per unit**: This is incorrect because the tax does not directly affect the supply side in this case. d. **Demand curve upward by the size of the tax per unit**: This is incorrect because the tax does not increase demand; it decreases it. Therefore, the correct answer is: **b. demand curve downward by the size of the tax per unit**.

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Mind Expander

When buyers are taxed on a good, the additional amount they need to pay per unit effectively reduces their willingness to purchase at any given price. This shift in their purchasing behavior causes the demand curve to move downward by the size of the tax per unit. Just imagine if your favorite coffee suddenly cost more due to a tax; you might consider buying less or switching to tea! In real-world scenarios, this can lead to interesting market dynamics. For instance, if the tax causes a significant drop in demand for a product, producers might respond by lowering prices, which could then create a ripple effect throughout the supply chain, leading to altered production strategies or even layoffs in extreme cases. Understanding these effects helps both consumers and producers navigate the complexities of taxed goods.

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