Per-Unit Taxes - Dont Double Count the Tax

This video focuses on a typical graph students will be presented with when studying per-unit taxes.  The graph both shifts the supply curve (as the marginal cost of supplying the good went up) and splits the consumers' price and producers' price (splitting Pc and Pp).  This is a problem.  Why? Well, when you shift the marginal cost curve you are seeing the tax as an additional cost of supplying the good.  However, when you split Pc and Pp (by placing Pp below the original price) you are seeing the tax as reducing the per-unit revenue of the supplier. This creates a confusing graph - a graph that may result in the student double counting the tax.  So, this issue begs the question, is there a better way to graph per-unit taxes...the answer is, yes.  Just use a tax wedge.  A tax wedge splits Pc and Pp, but does not rely on curves shifting.  Tax wedges provide the student with all the information they need, but with a cleaner, simpler graph.  The tax wedge is the superior modeling tool for per-unit taxes.

This video is made for 1st year college students or AP/IB Economics students.  It focuses on foundational economic concepts.

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