An Excise Tax on Sellers
A per-unit tax shifts supply left by the amount of the tax, raising the price buyers pay and cutting quantity.
An Excise Tax on Sellers
Supply and DemandA per-unit tax shifts supply left by the amount of the tax, raising the price buyers pay and cutting quantity.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The market begins where supply meets demand, with one price that buyers pay and sellers receive. A tax is about to split that single price into two.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
An Excise Tax on Sellers, step by step
- 1
Start in equilibrium
The market begins where supply meets demand, with one price that buyers pay and sellers receive. A tax is about to split that single price into two.
- 2
The tax is imposed
The government charges sellers a fixed amount per unit. Producing and selling a unit now costs that much more, so at any price sellers will supply less. Supply shifts left by the size of the tax measured vertically.
- 3
The price buyers pay rises
The new intersection sits at a higher price and a lower quantity. Buyers pay the new, higher price.
- 4
The price sellers keep falls
Sellers hand the tax over, so what they keep is the new price minus the tax, which is LOWER than the original equilibrium price. Both sides are worse off, which is why the burden is shared rather than paid by whoever writes the cheque.
- 5
Where the deadweight loss sits
Quantity fell, and the units that no longer trade were worth more to buyers than they cost sellers to make. That lost value is the deadweight loss triangle between the curves over the missing units. The tax revenue itself is not a loss: it is a transfer.
Where it ends up
Buyers pay more, sellers keep less, quantity falls, and the gap between the two prices is the tax.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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