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:

Monopoly

The exclusive control by one company over an entire industry or sector, eliminating competition.

Great Lakes

A group of five large, interconnected freshwater lakes located on the border between the United States and Canada, significant for their natural resources and as a transportation route.