Explain the effect of the imposition of a unit tax on bananas on market price

Imposition of a unit tax on goods causes supply to decrease. The supply curve moves upwards by the value of the unit tax. This changes its intersection with the demand curve to a higher price and lower quantity. However, the price increase is lower than that of the unit tax, since quantity demanded normally reduces with price.This discrepancy increases with greater inelasticity of the demand curve, as inelasticity indicates an unwillingness or inability for the customer to accept a higher price; it also increases with greater elasticity of the supply curve, as this indicates higher revenues acquired from selling redundant factors of production.

BC
Answered by Bradley C. Economics tutor

1799 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

Explain why a perfectly competitive firm will make normal profit in the long run.


Explain why a profit-maximizing monopolist would never choose to operate on the inelastic portion of its demand curve


If monopolies are so inefficient, why do they still exist?


Explain how a change in one of the determinants of supply could lead to a decrease in the price of rice.


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences