AP Syllabus focus: ‘Per-unit taxes and subsidies affect consumer price, firm revenue, equilibrium quantity, surplus, deadweight loss, and government revenue or cost.’
Per-unit (specific) taxes and subsidies create a constant wedge per unit traded. This wedge changes prices paid and received, reallocates surplus, alters equilibrium quantity, and typically generates deadweight loss.
Core idea: a per-unit wedge changes incentives
A per-unit tax raises the cost of trading each unit by a fixed dollar amount; a per-unit subsidy lowers it by a fixed dollar amount. In competitive markets, these policies shift the relevant curve and create a gap between what buyers pay and what sellers receive.
Per-unit (specific) tax: A tax of a fixed amount per unit sold that drives a wedge between the price consumers pay and the price firms receive.
With a tax, consumers face a higher effective price, and firms effectively receive a lower net-of-tax price. With a subsidy, consumers face a lower effective price, and firms receive a higher effective price (inclusive of the subsidy).
Graph mechanics (supply–demand model)
Per-unit tax
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FAQ
Either approach is acceptable: a tax on sellers shifts supply up/left by the tax; a tax on buyers shifts demand down/left by the tax. The equilibrium wedge and quantity reduction are the same.
Because market prices adjust until quantity demanded equals quantity supplied with a wedge of $t$ between $P_c$ and $P_p$. Legal responsibility doesn’t determine economic incidence.
On AP graphs, producer outcomes use the net price received ($P_p$). Gross consumer spending is based on $P_c$; tax revenue is $(P_c-P_p)\times Q$.
Not in the standard competitive model with an upward-sloping supply and no externalities. The tax reduces net price and quantity, which lowers producer surplus.
Compare elasticities by curve steepness near equilibrium. The side with the steeper (more inelastic) curve experiences the larger price change relative to the pre-tax equilibrium.
