Answer to Question #156514 in Microeconomics for Salman malik

Question

Explain the changing balance and tax sharing on the graph when a Rs.5 tax is applied to a low product with a market balance price of Rs.10?

Answer 1

The specified introduction of the tax will lead to a sharp decrease in the supply for this product since sellers will be forced to reduce its production due to a sharp increase in prices. The total amount of taxes will be reduced as a result.