Glossary · Micro · Market analysis and welfare

Tax wedge

The gap a per-unit tax opens between the price buyers pay and the price sellers keep. The wedge shrinks the quantity traded, the rectangle inside it is tax revenue, and the triangle beyond it is deadweight loss.

Also called: per-unit tax, excise tax

Draw it yourself Taught in: Deadweight Loss of Taxes

Related terms

Tax incidence Deadweight loss (DWL)

More from market analysis and welfare

Allocative efficiency Consumer surplus Market failure Negative externality Price ceiling Price floor Producer surplus

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