Excise Tax on Cigarettes
The question
The market for cigarettes in the country of Marnia is initially in equilibrium. The government of Marnia imposes a new tax of two dollars on producers for every pack of cigarettes they sell. Show the effect of this tax on the market for cigarettes, assuming all else is held constant. Show the effect on the Supply and Demand graph.
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Excise Tax on Cigarettes: the worked answer
On the Supply and Demand graph, Supply shifts left.
Why Supply shifts left
A per-unit tax collected from producers raises the cost of supplying each pack, which is a determinant of supply. At every price, sellers are now willing to offer fewer packs, so the supply curve shifts to the left. Consumers' incomes, tastes, and the prices of related goods are unchanged, so the demand curve does not move.
What happens to the equilibrium
The equilibrium price paid by consumers rises and the equilibrium quantity of cigarettes decreases.
The mistake students make on this one
Because smokers end up paying more, many students draw this as a leftward demand shift. The tax is legally collected from sellers, so it raises their per-unit cost and moves supply; the higher consumer price is the consequence of that shift, and buyers only move along their unchanged demand curve.
On exam day
Ask who legally writes the check to the government: a per-unit tax on producers shifts supply up by the tax, while a tax collected from buyers is the one drawn as a demand shift.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when Supply shifts left and every other curve on the Supply and Demand graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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