Indirect Taxes and Consumer Surplus

Indirect taxes

An indirect tax is a tax imposed by the government that increases the supply costs of producers. The amount of the tax is always shown by the vertical distance between the pre- and post-tax supply curves. Because of the tax, less can be supplied to the market at each price level.

Consumer surplus

Consumer surplus is the difference between the price that consumers are willing and able to pay for a good or service (shown by the demand curve) and the total amount (price x quantity) they pay.