Principles of Microeconomics / Unit 4 MIC 0328 worked example, 60 to 90 seconds
Buyer's Tax or Seller's Tax: Same Result
The idea
Work a tax two ways and compare. Levied on sellers, it lifts the supply curve by the tax: sellers now need the old price plus the tax to offer each quantity. Levied on buyers, it lowers the demand curve by the tax: buyers will pay sellers the old willingness minus the tax. Either way, the quantity where the curves meet is the same, buyers end up paying the same price, and sellers end up keeping the same price. The wedge is the same wedge from both directions.
In practice
Worked example: in the juice market, a one-dollar tax on sellers shifts supply up, and the market clears at nine thousand bottles with buyers paying three seventy at the register. The same tax charged to buyers shifts demand down; the market clears at nine thousand bottles with a register price of two seventy, and buyers add the dollar of tax to reach three seventy. Sellers keep two seventy in both cases; buyers pay three seventy in both.
Where people slip
The posted price differs between the two laws, which is what makes the error tempting: the register shows three seventy in one case and two seventy in the other. The burden does not move with the posting. Compare what buyers pay in total and what sellers keep in total, and the two laws are identical.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Unlocks
Something wrong in this lesson? Flag it