Final answer:
A tax imposed on sellers will result in a leftward shift of the supply curve, which is sometimes referred to as the supply curve moving up by the amount of the tax. The key outcome is a decrease in the quantity of goods supplied at any given price and an increase in price for consumers, all things equal. This recognises that a tax raises production costs and diminishes the sellers' profits.
Step-by-step explanation:
When a tax is imposed on sellers in a market, it effectively increases the costs of production for those sellers. This tax can be thought of as an additional expense that the sellers must bear, which results in them receiving less revenue for each unit they sell. In economic terms, this situation is illustrated by a leftward shift of the supply curve, representing that at every given price, sellers are now willing to supply fewer goods than before the tax was applied.
The correct option that answers the question ‘A tax imposed on sellers will shift the:’ is a. the supply curve up by the amount of the tax. However, for representation purposes, it is important to note that although it is phrased as 'shifting the curve up,' in practice, this actually means the supply curve shifts to the left. This shift indicates a reduction in the quantity supplied at any given price and a higher price for buyers to pay, assuming demand remains constant.
To support the comprehension, consider the example of beachfront hotels. If the government imposes a tax on these hotels, their supply curve will shift leftward.
This reflects that at the new market price Pc, they can only supply a lower quantity of hotel rooms, due to the tax reducing their profits. The difference between the price consumers pay, Pc, and the price received by producers, Pp, is equal to the tax rate, and this can also be visualized as the supply curve shifting to reflect the higher cost of production.