Option 1. Tax is paid by the seller to the government and is, therefore, like a cost of production.
Since sellers have to pay tax to the government, it decreases the effective price received by the seller (= post-tax equilibrium price - Unit tax), so sellers produce less, decreasing market supply.
Overall Point: A tax on sellers shifts the supply curve upward by the amount of the tax. The following is an example of a particular good with a $0.08 tax imposed on it. The figure below illustrates the amount of tax paid by the buyers and the sellers as well as the dead weight losses that result.
A tax on a good raises the price buyers to pay, lowers the price sellers receive, and reduces the quantity sold. 7. The burden of a tax is divided between buyers and sellers depending on the elasticity of demand and supply.
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