📚 Learning Guide
Understanding Per-Unit Taxes
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Imposing a per-unit tax on a good will always lead to a decrease in the overall market supply of that good, regardless of the elasticity of demand.

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A

True

B

False

Understanding the Answer

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Answer

When a government imposes a per-unit tax on a good, it means that producers must pay a certain amount of money for each unit they sell. This tax increases the cost of production, which can lead to a decrease in the overall supply of that good because some producers may find it less profitable to produce as much. For example, if a company that makes shoes has to pay an extra $5 for each pair they sell, they might decide to make fewer shoes because their profits are lower. Even if demand for shoes is strong, the added cost can discourage production, leading to fewer shoes available for sale. Therefore, regardless of how much people want the shoes, the tax affects the supply side, causing a decrease in the overall market supply.

Detailed Explanation

A per-unit tax does not always reduce supply. Other options are incorrect because Some might think that any tax will always cut supply.

Key Concepts

Per-Unit Taxes
Market Supply and Demand
Elasticity
Topic

Understanding Per-Unit Taxes

Difficulty

medium level question

Cognitive Level

understand

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