How does an increase in an excise tax on cars affect the supply of cars?
A. More cars will be made.
B. Fewer cars will be made.
C. Supply will stay the same.
D. Supply will increase.
B. Fewer cars will be made
An increase in an excise tax on cars affects the supply of cars by reducing the quantity of cars that producers are willing and able to supply at each price level. In other words, it leads to a decrease in the supply of cars.
The reason for this is that an excise tax is a type of tax imposed specifically on certain goods, in this case, cars. When the tax is increased, it raises the cost of producing cars for the manufacturers. This means that manufacturers have to spend more money to produce each car, reducing their profitability.
As a result, producers are likely to decrease the quantity of cars they are willing to supply at each price level. This decrease in supply is represented by a leftward shift of the supply curve, showing that lesser cars will be supplied at each corresponding price.
Given this explanation, the correct answer is:
B. Fewer cars will be made.