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

2109 Views

See similar Economics IB tutors

Related Economics IB answers

All answers ▸

What factors influence the shift of a demand curve?


A government decides to Impose an indirect tax on fast food. Discuss the effects for the stakeholders in these markets.


Describe why excess profits can't be made in a competitively perfect market.


What are causes of exchange rate fluctuations?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

MyTutor is part of the IXL family of brands:

© 2026 by IXL Learning