Markets · Tool 04

Tax incidence

A per-unit (excise) tax drives a wedge t between the price buyers pay (Pd) and the price sellers receive (Ps). Flip who the tax is levied on and watch the outcome stay the same — only the shifting curve changes.

Inverse demandP = a − bQ Inverse supplyP = c + dQ
Levied on
Consumer surplus Producer surplus Tax burden on consumers Tax burden on producers Deadweight loss
Equilibrium price  P*— Equilibrium qty  Q*—
Quantity traded  Qt— Buyers pay  Pd— Sellers receive  Ps— Consumer burden / unit— Producer burden / unit— Tax revenue  t·Qt—
Who bears the tax
50%
50%
Consumers · share = b/(b+d)Producers · share = d/(b+d)
Welfare
No taxWith tax
Consumer surplus——
Producer surplus——
Tax revenue0.00—
Total surplus——
Deadweight loss0.00—
Statutory side doesn't matter.
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Built with Claude · Amit Goyal · amit.goyal@nyu.edu
More is preferred to less.