The following is the demand and supply quantities for Firm X at different price points.Price (cost per unit) (in ₹)Quantity demanded (in thousands)Quantity supplied (pre-environment tax) (in thousands)Quantity supplied (post-environment tax) (in thousands)1075035032515675400375205604754502549051549030360570545 How did the supply curve of Firm X react to the environment tax? The supply curve shifted to the rightThe supply curve shifted to the leftThe supply curve remained unchanged
Question
The following is the demand and supply quantities for Firm X at different price points.Price (cost per unit) (in ₹)Quantity demanded (in thousands)Quantity supplied (pre-environment tax) (in thousands)Quantity supplied (post-environment tax) (in thousands)1075035032515675400375205604754502549051549030360570545 How did the supply curve of Firm X react to the environment tax? The supply curve shifted to the rightThe supply curve shifted to the leftThe supply curve remained unchanged
Solution
The supply curve of Firm X shifted to the left after the environment tax was implemented. This is evident from the decrease in the quantity supplied at each price point post-environment tax compared to pre-environment tax. For example, at a price of 10, the quantity supplied decreased from 350 to 325 thousand units. Similarly, at a price of 15, the quantity supplied decreased from 675 to 540 thousand units. This leftward shift of the supply curve indicates that the firm is supplying less at each price point after the tax, likely due to the increased cost of production resulting from the tax.
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