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    Hi,

    I'm having a bit of difficulty understanding this diagram of tax incidence. My question is why is the price that the supplier receives below the new equilibrium price? Before the tax, would the supplier have received the old equilibrium price?
    Basically I just don't really understand the diagrammatic explanation of tax incidence.

    The diagram I'm referring to is attached below!

    Thank you!
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    (Original post by Zoze)
    Hi,

    I'm having a bit of difficulty understanding this diagram of tax incidence. My question is why is the price that the supplier receives below the new equilibrium price? Before the tax, would the supplier have received the old equilibrium price?
    Basically I just don't really understand the diagrammatic explanation of tax incidence.

    The diagram I'm referring to is attached below!

    Thank you!
    Consumer burden on top because producers pay higher prices after tax.

    Producer burden on bottom because producers get a higher price after tax but then have to pay the tax, so end up with less revenue per unit overall - so on the bottom.

    Can explain properly if you'd like - DM me.
 
 
 
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Updated: January 9, 2017
Poll
“Yanny” or “Laurel”

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

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