Tax Diagram Explained. Money taxes tax structure. A tax should be placed on the good equal to the external marginal cost.
The consumer burden is 80 x 4 320. The equilibrium price rises from p1 to p2 whilst quantity falls from q1 to q2. Diagram taxes on negative externalities.
1 people who earn up to usd 50 000 pay a 5 income tax 2 people who earn between usd 50 000 and usd 100 000 pay 10 and 3 people who make more than usd 100 000 pay a 20 income tax.
As a result allocative efficiency is achieved there is no deadweight loss and welfare is maximised. In this case the tax burden is split evenly between the consumer and producer. Example of tax incidence. In the diagram below an ad valorem tax has been imposed on producers.
