The effect of the tax is to shift the supply curve, which is S without the tax, to St. The shift is an upward shift by the amount of the tax, but the upward shift is the same as a backward shift, a decrease in supply. … Thus the consumers and producers share the burden of the tax.
What is an excise tax and how do excise taxes affect the supply curves?
When a government imposes an excise tax on a good, however, it drives a wedge between the supply curve and the demand curve, forcing a new equilibrium where the amount paid by the consumer is greater than the amount received by the producer.
How does tax affect supply equation?
As the tax affects supply, the supply curve tends to shift upward, thus establishing the new equilibrium with the same demand curve. Therefore, the new price has to be established for the new supply curve equation and the new supply equation is equalized to demand equation to determine new equilibrium price.
How does an excise tax affect price?
In the short run, an excise tax increases the price of the product, albeit by less than the full amount of the tax, and the price burden is shared by both the producers and the consumers. The exact effect depends on the elas- ticities of demand and supply for the product.
What effect does an increase in excise tax have on the supply curve of the product?
What effect does an increase in excise tax have on supply curve of product? The supply curve shifts to the left. (As profit falls due to rise in cost.)
How do you calculate excise tax?
The amount of revenue collected by the government can then be calculated by multiplying the excise tax itself (t) by the quantity of goods that will be produced at this equilibrium (Q).
What is the amount of tax per unit?
From Wikipedia, the free encyclopedia. A per unit tax, or specific tax, is a tax that is defined as a fixed amount for each unit of a good or service sold, such as cents per kilogram. It is thus proportional to the particular quantity of a product sold, regardless of its price.
Does excise tax affect demand?
In general, an excise tax will decrease the quantity of the item that consumers demand. This occurs for the simple reason that an excise tax increases the price of the product, making it less attractive to consumers.
Are excise taxes efficient?
The opposite of a broad-based tax is an excise tax, a tax levied on particular goods. Historically, governments have used soft drink excise taxes, which have existed since at least 1920, primarily to generate revenue. … Not surprisingly, though, this tax raises efficiency concerns similar to those taxes.