# Price Producers Receive as a Result of Indirect Taxes

In my economics class, we were introduced to the idea that if the government imposes an indirect tax on a good, the price consumers have to pay increases, but along with this increase in price for consumers, the price producers receive decreases. I understand the former perfectly, however, don't understand why the price producers receive decreases.

$P^*$ is the original price prior to the imposition of taxes, and $Q^*$ is the quantity demanded prior to the imposition of taxes. $P_c$ is the price paid by consumers after the government's decision, and $P_p$ is the price received by firms, once again, after the imposition of taxes.

My question is, why isn't $P^*$ equal to $P_p$?

So $P* \neq P_p$ because the producer will have to shift from the equilibrium just like the producer will have to. It's the same idea for the consumer as for the producer, since the tax burden falls on both of them.
• Because even though the producers charge $P_c$, part of the tax goes to the government and the producers receive $P_p$. So that's why you'll get that alignment. Oct 17 '15 at 1:35
• You have an object that costs $1.00 without any tax, meaning that the producers receive exactly$1.00. The government decides to impose a $0.08 tax on the object - after this imposition, the consumers pay$1.08, and the government receives $0.08 per good sold. However, the price received by firms is still$1.00. This is what I'm basing my argument for why P* = Pp. What's wrong with this? Oct 17 '15 at 1:43