The correct answer is: B. the price-rise is less than the amount of the tax.
A specific excise tax is a per-unit tax on a good or service. When a specific excise tax is imposed on a good in a purely competitive market, the price of the good will rise, but the price rise will be less than the amount of the tax. This is because the tax will shift the supply curve upward, but the demand curve will remain unchanged. The equilibrium price will be higher than the original equilibrium price, but it will be lower than the price that would prevail if the demand curve were perfectly inelastic.
Here is a diagram that illustrates the effect of a specific excise tax on a purely competitive market:
[Diagram of a purely competitive market with a specific excise tax imposed]
The original equilibrium price is $P_0$ and the original equilibrium quantity is $Q_0$. When the tax is imposed, the supply curve shifts upward to $S_T$. The new equilibrium price is $P_T$ and the new equilibrium quantity is $Q_T$. The price rise is less than the amount of the tax because the demand curve is downward-sloping. The consumers of the good bear some of the burden of the tax, but the producers also bear some of the burden.
Here is a brief explanation of each option:
- Option A: Price rises by the amount of the tax. This is not correct because the price rise will be less than the amount of the tax.
- Option B: The price-rise is less than the amount of the tax. This is correct. The price rise will be less than the amount of the tax because the demand curve is downward-sloping.
- Option C: The price-rise is greater than the amount of the tax. This is not correct because the price rise will be less than the amount of the tax.
- Option D: The price remains the same. This is not correct because the price will rise when a specific excise tax is imposed.