Simple Economics on the Web
Your handy guide to economics
Tax imposed on Producers
In this case, a tax of, say, $50 cents per unit is imposed on the producer - the producer must pay this tax on every unit that leaves the factory. This producer tax effectively creates two supply curves. The lower supply curve - the original one - determines how many units the producer will produce. The upper supply curve represents the producer's price plus the amount of the producer tax and is the price that consumers will pay.
Again, use the orange button to experiment with different levels of the tax.
Questions: What happens to the price producers receive? What happens to the price producers pay. How do you explain the fact that the price to producers does not fall by the full amount of the producer tax?