Why do excise taxes and subsidies affect the supply of goods differently in a market?

• A. Excise taxes and subsidies have no impact on the supply curve; they only affect equilibrium price.
• B. Excise taxes and subsidies both decrease production costs, but only subsidies affect the supply curve.
• C. Excise taxes shift the demand curve, while subsidies shift the supply curve.
• D. Excise taxes increase production costs, shifting the supply curve left, while subsidies decrease costs, shifting the supply curve right.

Answer: (D)

Verified step by step guidance

1. Understand that the supply curve represents the relationship between the price of a good and the quantity producers are willing to supply, holding other factors constant.
2. Recognize that an excise tax is a per-unit tax imposed on producers, which effectively increases their cost of production for each unit sold.
3. Since excise taxes increase production costs, producers will supply less at each price level, causing the supply curve to shift to the left (a decrease in supply).
4. Conversely, a subsidy is a payment from the government to producers that lowers their cost of production per unit.
5. Because subsidies reduce production costs, producers are willing to supply more at each price level, causing the supply curve to shift to the right (an increase in supply).