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I am confused about the amount of tax producers and consumers pay.

On this diagram, I can see that the supply curve increases by twenty dollars, as the tax is 20 dollars. The consumers have to pay 10 dollars more from what they previously had to pay.

This confuses me a bit. Don't producers and consumers pay the same amount of tax? When I look at this, it seems like they pay a different amount. The consumers pay 10 dollars more, but the producers don't pay $10 more.

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Tax is payed by the party it’s levied on, but I think your question is about tax burden and loss of consumer/producer surplus.

In this case both producers and consumers loose the same amount of their surplus, as you can calculate the lost area which is for both of them 40.

However, in real life this does not have to be symmetric. It depends on the elasticity of the demand and supply. As a general rule the more elastic demand the higher share of the tax burden goes on producers and the more elastic supply the higher share of burden is shifted to consumers.

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  • $\begingroup$ Right, but in this case, is the amount of tax payed shared between producers and consumers? $\endgroup$ – Christopher U Nov 18 '19 at 2:02
  • $\begingroup$ Because the producers raise the price by 20 dollars, and the consumers pay 10 dollars more from equilibrium, and the other 10 dollars is payed by the producer. Is that correct or not? And how did you calculate the lost area? $\endgroup$ – Christopher U Nov 18 '19 at 2:04
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    $\begingroup$ @ChristopherUren Yes but only one party actually pays tax to the government the other party faces higher price that is correct - but if you want to follow proper terminology that is their share of tax burden. For example, VAT is officially payed by consumers and just collected by companies who pass it to government. However, the tax burden from VAT is shared because precisely as you said it changes the equilibrium price and also quantity $\endgroup$ – 1muflon1♦ Nov 18 '19 at 2:32

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