Question

Suppose a \$1 excise or commodity tax is placed on the purchasers of cans of soda. Use the graph to illustrate the impact this tax would have on the soda market and answer the questions. Be certain to

Answer 1

Reducing the soda tax would increase the supply of sodas, leading to a decrease in the equilibrium price and an increase in the equilibrium quantity.

Step-by-step explanation:

When the soda tax is reduced, it would lead to an increase in the supply of sodas. This is because the tax acts as an additional cost for sellers, and reducing the tax would lower their costs, incentivizing them to supply more sodas. Graphically, this would result in a rightward shift of the supply curve.

As a result of the increase in supply, the equilibrium price of sodas would decrease, and the equilibrium quantity would increase. This means that consumers would be able to purchase sodas at a lower price, leading to an increase in quantity demanded.

In summary, reducing the soda tax would increase the supply of sodas, resulting in a decrease in the equilibrium price and an increase in the equilibrium quantity.