If the Government Levies a $1 Excise Tax on Each

question 107

Multiple Choice

If the government levies a $1 excise tax on each unit of a good sold, what will happen to the producer's cost curve?

• A) The average total cost and marginal cost curves will shift downward by the amount of the tax.
• B) The average total cost and marginal cost curves will shift upward by the amount of the tax.
• C) The marginal cost curve will shift upward by the amount of the tax; the average total cost curve will remain unchanged.
• D) Both the marginal cost and average total costs will remain the same since taxes are not a cost of production.

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Definitions:

Posting

the process of transferring journal entries to respective accounts in the ledger.

Ledger

A book or electronic record used to record all of a company's financial transactions in chronological order.

T-account

A graphical representation used in accounting to illustrate the effects of transactions on account balances, with debits on the left and credits on the right.

Credit

A financial term denoting the ability to obtain goods or services before payment, based on the trust that payment will be made in the future.