Answer to Question #228899 in Microeconomics for KAT

Question

How would a sales tax affect the equilibrium and output and price of firm under marginal cost and average cost pricing principles? with explanation?

Answer 1

While the sales tax impacts an inward shift within supply curve, it similarly has secondary impact on a product's equilibrium price. The sales tax tends to increase goods' prices as it leads to a fall in equilibrium price. This increases the equilibrium output of a product.