Ch 3 Incidence of a tax new handout.doc

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Course Code
ECON 1900
Nancy Carson

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Incidence of a tax. Suppose the government collects a tax of $3 per unit. In the top diagram, the tax placed on production. In the bottom diagram, the tax is placed on consumption. It makes no difference whether the government requires producers or consumers pay the tax, the burden of the tax remains the same for each. The burden for consumers is the increase in price that results from the tax (P – P ). Thc bur0en for producers is the decrease in price that results from the tax (P – P ).0Tax pill reduce the equilibrium Quantity . Price will increase for consumers. Price will decrease for producers . But Qd = Qs Pc-Pp= tax per Unit Excise tax is a fixed am
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