3.3 Excise Taxes Impact of an Excise Tax Tax on a particular good or service expressed as a dollar amount per unit of quantity The curve for producers is S, because the price the producers see does not include the tax. The supply curve facing consumers is S+tax, since they are paying tax on the quantity they are buying

Impact of an Excise Tax An excise tax causes supply as seen by consumers to shift to S1 Initially, consumers see a price of almost $4 At the new equilibrium, consumers pay $2.60 which producers receive $1.00 Since D is elastic, producers pay more tax than consumers

Impact of an Excise Tax

Impact of an Excise Tax Overall: If supply is elastic, consumers pay more of the tax If supply is inelastic, producers pay more of the tax