A $2 tax per unit imposed on businesses in a cutthroat market will, in the short term, result in less supply of goods. Taxes will cause both the producer surplus and the consumer surplus to decline.
The elasticity of the demand and supply curves will, however, determine how much of an impact taxes have..
Leftward sloping supply curve will occur. Given that the demand will remain the same in the short term, this will result in higher pricing. The equilibrium shifts from point up to point down as a result.
Producer surplus in a completely competitive market is zero over the long run since the economy is running at a loss. It will therefore not alter. However, the consumer surplus will decline. Therefore, in the long run, only consumers will be impacted.
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