distance between the two supply curves is equal to the amount of tax in per cent. The effective price to the sellers is again lower by the amount of the tax and they will supply the good as if the price were lower by the amount of tax. Last, the total impact of the tax can be observed. The equilibrium price of the good rises and the equilibrium quantity decreases. The buyers and sellers again share the burden of the tax relative to their price elasticities. The buyers have to pay more for the good and the sellers receive less money than before the tax has been imposed. Example The pre-tax equilibrium price is $5.00 with respective equilibrium quantity of 100. The government imposes a 20 per cent tax on the sellers. A new supply curve emerges. It is shifted upward and pivoted to the left and upwards in comparison to the original supply curve and their distance is always 20 per cent of the original price. In the pre-tax equilibrium the distance equals $5.00 x 0.20 = $1.00. This burden of the tax is again shared by the buyer and seller. If the new equilibrium quantity decreases to 85 and the buyer bears a higher proportion of the tax burden (e.g. $0.75), the total amount of tax collected equals $1.00 x 85 = $85.00. The buyer then faces the tax of $0.75 x 85 = $63.75 and the tax paid by the seller equals $0.25 x 85 = $21.25. The price the consumer buys the good for equals $5.75 but the seller only receives $4.75. Subsidy impact Marginal subsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the per unit subsidy; when other things remain equal, this will decrease price paid by the consumers (which is equal to the new market price) and increase the price received by the producers. Similarly, a marginal subsidy on consumption will shift the demand curve to the right; when other things remain equal, this will decrease the price paid by consumers and increase the price received by producers by the same amount as if the subsidy had been granted to producers. However, in this case, the new market price will be the price received by producers. The end result is that the lower price that consumers pay and the