Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.

Supply Curve:

The supply curve depicts the number of items produced at various price points. For the producer, the supply curve is crucial. The supply curve is slanted upwards.

The fewer the taxes, the lower the cost of production will be. Now, if the soda tax is reduced, the cost of producing soda will be reduced. As a result, companies will make more sodas, increasing the supply of sodas. As a result, the equilibrium price falls and the equilibrium quantity rises.

Because the soda tax is collected from the retailers, lowering the tax will lower their costs. As a result of decreasing costs, supply will grow, resulting in a lower equilibrium market price and a greater equilibrium market quantity, as shown below.