ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U.S. government imposes a tax on alcoholic beverages that collects about $8 billion per year from producers.

Detailed explanation-2: -When there is an increase in unit tax on the production of goods by the government, the unit cost of production will rise and consequently, the firm would supply less than before at the given price. The supply would decrease implying that the supply curve would shift to the left.

Detailed explanation-3: -A change in the number of sellers in an industry changes the quantity available at each price and thus changes supply. An increase in the number of sellers supplying a good or service shifts the supply curve to the right; a reduction in the number of sellers shifts the supply curve to the left.

Detailed explanation-4: -Such taxes affect supply because it adds to the cost of production. Reduction in per unit tax levied by the government will decrease the cost of production and increase supply by the firms due to higher profit margins. In this case the supply curve will shift towards the right.