Tax

Tax

A per unit tax is a fixed amount of tax paid by either buyer or seller on every good that is sold.

Steps when Tax is Paid by Seller

1. Every point on supply curve shifts up (left) by the amount of the tax
2. The new equilibrium price is the amount paid by consumers. In the diagram below, this price is ________
3. The new equilibrium quantity with the tax is ________units
4. Plug the new quantity in to the original supply curve to get the price the producers receive. In the diagram below this would be ________
5. The amount of the tax is the difference between the consumer price and producer price at the new equilibrium quantity. In the diagram below this would be ________

Steps when Tax is Paid by Consumers

1. Every point on demand curve shifts down (left) by the amount of the tax
2. The new equilibrium price is the amount received by sellers (producers). In the diagram below the price received by producers is ________
3. The new equilibrium quantity with the tax is ________units
4. Plug the new quantity in to the original demand curve to get the price the consumers pay. In the diagram below this would be ________
5. The amount of the tax is the difference between the consumer price and producer price at the new equilibrium quantity. In the diagram below this would be ________