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HomeHomework HelpeconomicsUnderstanding Per-Unit Taxes

Understanding Per-Unit Taxes

Per-unit taxes are levies imposed on each unit of a good produced, which influence the marginal cost of production. In the context of negative externalities, these taxes can help align the marginal private cost with the marginal social cost, encouraging producers to reduce output to a socially efficient level. Understanding how these taxes work is crucial for analyzing market efficiency and the role of government in correcting market failures.

intermediate
2 hours
Economics
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Overview

Per-unit taxes are a crucial concept in economics, representing a fixed charge on each unit of a good or service sold. These taxes can significantly influence market dynamics by shifting supply and demand curves, leading to changes in equilibrium prices and quantities. Understanding how per-unit tax...

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Key Terms

Per-Unit Tax
A fixed tax applied to each unit of a good or service sold.

Example: A $1 tax on each pack of cigarettes.

Tax Incidence
The analysis of the effect of a particular tax on the distribution of economic welfare.

Example: Who ultimately pays the tax burden.

Supply Curve
A graph showing the relationship between the price of a good and the quantity supplied.

Example: As prices rise, suppliers are willing to sell more.

Demand Curve
A graph showing the relationship between the price of a good and the quantity demanded.

Example: As prices fall, consumers buy more.

Equilibrium Price
The price at which the quantity of a good demanded equals the quantity supplied.

Example: The market price where supply and demand intersect.

Consumer Surplus
The difference between what consumers are willing to pay and what they actually pay.

Example: Buying a concert ticket for $50 when you would pay $70.

Related Topics

Tax Policy
Study of how taxes are structured and their economic implications.
intermediate
Market Structures
Understanding different market types and their behaviors.
intermediate
Consumer Behavior
Analysis of how consumers make purchasing decisions.
intermediate

Key Concepts

tax incidenceconsumer surplusproducer surplusmarket equilibrium