JustBusiness17
New Member
This is a really basic concept that helps with understanding the market place.
Legend:
Green arrow is the excise tax amount
Purple arrow is the cost of the tax incurred to the supplier
Orange arrow is the cost of the tax incurred by the consumer
Depending on the shape of the supply and demand curves, an excise tax is shared in different proportions. The quantity is reduced (which is often the point - see "sin tax"), and the difference between the original selling price and the new selling price becomes the "burden" of the consumer. The difference between the selling price and the price ordinarily charged at the new quantity level is the burden incurred by the seller.
It's important to note that the burden on the seller does not come directly from their profit margin since factors like "marginal product" need to be considered.
That's excise taxes 101...
Legend:
Green arrow is the excise tax amount
Purple arrow is the cost of the tax incurred to the supplier
Orange arrow is the cost of the tax incurred by the consumer
Depending on the shape of the supply and demand curves, an excise tax is shared in different proportions. The quantity is reduced (which is often the point - see "sin tax"), and the difference between the original selling price and the new selling price becomes the "burden" of the consumer. The difference between the selling price and the price ordinarily charged at the new quantity level is the burden incurred by the seller.
It's important to note that the burden on the seller does not come directly from their profit margin since factors like "marginal product" need to be considered.
That's excise taxes 101...
