A unit tax of $1 has been levied on a good. The equilibrium price of the good will most likely A. remain unchanged. B. decrease by $1. C. increase by an amount less than $1. D. increase by $1.

C. increase by an amount less than $1.

Explanation:

Tax imposition leads to increase in equillibrum price. When taxes are increased it result in a shift to the left of supply, that means supply reduces. Shift is from S1 to S2.

Equillibrum changes from M to M1.

Tax is represented by PA to PC, and this is greater than the change in equillibrum price (PA to PB).

So in this instance if the tax imposed is $1, there will be an increase in equillibrum price that will be less than $1.

Find attached the diagram used to illustrate effect of tax on equillibrum price.

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