Supply and the Excise Tax: An excise tax is a tax that is paid directly by suppliers to the government. It causes the curve to shift to the left parallel to itself by the amount of the tax. Supply Market: Market supply is the sum of the individual supplies by all the sellers. Market supply curve is the horizontal summation of individual supply curves.
Demand and Supply Equilibrium: The points where the demand and supply curves intersect each other. Shifts in demand, supply or both the curves changes the equilibrium. In order to find the effect of a certain event on equilibrium, we have to know first whether the event shifts the demand or supply curve and then trace the effect on equilibrium systematically. Both the sales tax and excise tax reduce the equilibrium quantity. In both cases, the price paid by demanders increase and the price received by suppliers decrease. In other words, both the suppliers and demanders are worse off regardless of whether it is a sales tax or an excise tax. In other words, both the demanders and the suppliers bear the burden of the tax. The magnitude of burden however, depends upon the shapes of the demand and supply curves. Supply curve/function: A graph or equation that expresses the quantity supplied relative to the price per unit.
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