How does an indirect tax generally impact supply?

An indirect tax, such as a sales tax or value-added tax, generally results in an increase in the costs for producers because they have to pay this tax when they sell goods or services. When the costs of production rise due to the addition of an indirect tax, producers are less able or willing to supply the same quantity of goods at previous price levels.

This leads to a decrease in supply, as higher costs may cause producers to reduce the quantity they supply to the market at any given price. Essentially, the indirect tax shifts the supply curve to the left, reflecting a reduction in the overall supply available in the market. Therefore, the correct answer highlights this fundamental principle in economics, whereby increased production costs due to indirect taxation decrease the overall supply.