In the above example the tax is analyzed by means of shifting the supply curve. This implies that the supplier is obliged to charge the consumer a tax and then return this tax revenue to the government. But suppose the supplier did not bear the obligation to collect the revenue; instead the buyer is required to send the tax revenue to the government. If this were the case we could analyze the impact of the tax by reducing the market demand curve by the $4. This is because the demand curve reflects what consumers are willing to pay, and when suppliers are paid in the presence of the tax they will be paid the buyers’ demand price minus the tax that the buyers must pay. It is not difficult to show that whether we move the supply curve upward (to reflect the responsibility of the supplier to pay the government) or move the demand curve downward, the outcome is the same – in the sense that the same price and quantity will be traded in each case. Furthermore the incidence of the tax, measured by how the price change is apportioned between the buyers and sellers is also unchanged.
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