Q. 155.0( 2 Votes )
How does the impo
The unit tax is a tax imposed on per unit of the output sold. Due to imposition of unit tax, the cost of production per unit of output increases which increases the marginal cost due to which the supply falls and the supply curve shift towards left.
Let us understand it with help of the following graph
At given price P and Quantity Q and the average cost curve and marginal cost curve is given. Now suppose government imposes unit tax of rupees 'k' per unit so now the price will be 'P + k' due to which marginal cost curve and average cost curve will shift from AC1 to AC2 and marginal cost curve from MC1 to MC2. The magnitude of shift will be equal to k. As the supply curve is a part of marginal cost so it will also shift towards left from S1 to S2, therefore now the firm will supply lesser units of output.
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