Assuming a normal upward-sloping supply curve and downward-sloping demand curve,if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers,the price of leather shoes will:

A) increase by $5.
B) increase by more than $5.
C) increase by less than $5.
D) increase,but we cannot determine by how much.

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Tyler Foster · Accepted Answer

Final Answer : C, Explanation :  When the excise tax is imposed on leather shoes, the supply curve shifts upwards by the amount of the tax ($5 in this case). As a result, the new equilibrium price will be higher than before the tax was imposed. However, the actual increase in price will be less than $5 because the demand curve is downward-sloping. This means that as the price increases, quantity demanded decreases. Therefore, some of the tax burden will be absorbed by the suppliers and some will be passed on to the consumers in the form of a price increase, but the actual increase in price will be less than $5.

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