How is an excise tax illustrated in a supply graph?

An excise tax is a tax imposed on a specific good or service, which increases the cost of production for suppliers. When an excise tax is introduced, it effectively increases the costs for producers, causing them to supply less of the good at any given price. This is illustrated in a supply graph by a leftward shift of the supply curve.

Specifically, the shift represents a decrease in supply—a higher price is now required to cover the costs associated with the tax. For example, if a good initially sold at a price of $10 before tax is now subject to a $2 excise tax, suppliers may only be willing to supply the same quantity at $12 or may supply less at the original price. This results in a decreased quantity supplied at any price point, which is shown graphically by the supply curve moving to the left.

This concept illustrates the direct impact of taxes on market behavior, demonstrating how excise taxes can lead to higher prices for consumers and reduced quantities available in the market.