---
title: "Per-Unit Taxes — AP Micro Definition & Exam Guide"
description: "A per-unit tax charges firms a set amount per unit sold, shifting marginal cost up, cutting quantity, and creating deadweight loss. Core to AP Micro Topic 6.4."
canonical: "https://fiveable.me/ap-micro/key-terms/per-unit-taxes"
type: "key-term"
subject: "AP Microeconomics"
unit: "Unit 6"
---

# Per-Unit Taxes — AP Micro Definition & Exam Guide

## Definition

A per-unit tax is a fixed dollar amount the government charges on each unit of a good sold, which raises the price consumers pay, lowers the net price firms receive, reduces equilibrium quantity, and creates deadweight loss (AP Micro Topic 6.4, EK POL-4.A.1).

## What It Is

A [per-unit tax](/ap-micro/key-terms/per-unit-tax "fv-autolink") (also called an excise tax) is a tax of a fixed dollar amount on every unit a firm sells. Sell 100 units with a $2 per-unit tax, and you owe $200. Because the tax is tied to each unit produced, it changes the firm's **marginal cost**. On a graph, the supply curve (or the MC curve for a monopoly) shifts up by exactly the amount of the tax.

That marginal cost shift is what drives everything else. Per EK POL-4.A.1, a per-unit tax raises the total [price](/ap-micro/unit-2/supply/study-guide/6Q4OmUPc9RVRr9R7JmFS "fv-autolink") consumers pay, lowers the net price [firms](/ap-micro/unit-5/intro-factor-markets/study-guide/pwArfJpGkiQNHkjkRJe8 "fv-autolink") actually keep (price minus the tax), shrinks equilibrium quantity, cuts both consumer and producer surplus, generates government revenue (tax × new quantity), and creates deadweight loss. Who eats more of the tax, buyers or sellers, depends on the price elasticities of demand and supply. The less elastic side of the market bears the bigger share, because it can't easily walk away.

## Why It Matters

Per-unit taxes live in **[Unit 6](/ap-micro/unit-6 "fv-autolink"): Market Failure and the Role of Government**, specifically Topic 6.4, and hit all three learning objectives there. You need to define the policy (6.4.A), show its effects on a graph in both perfectly competitive and [monopoly](/ap-micro/key-terms/monopoly "fv-autolink") markets (6.4.B), and calculate the new price, quantity, surplus areas, tax revenue, and deadweight loss from a graph or table (6.4.C). It also pulls together half the course. The analysis recycles elasticity from Unit 2, cost curves from Unit 3, and monopoly profit-maximization from Unit 4. If you can fully work a per-unit tax problem, you've proven you understand how the whole supply-and-demand machine fits together, which is exactly why FRQs love this setup.

## Connections

### [Lump-Sum Tax (Unit 6)](/ap-micro/key-terms/lump-sum-tax)

This is the contrast the exam tests constantly. A per-unit tax changes [marginal cost](/ap-micro/key-terms/marginal-cost "fv-autolink"), so the firm changes its output. A lump-sum tax is one flat fee no matter how much you produce, so it only raises fixed cost and the profit-maximizing quantity doesn't budge (EK POL-4.A.2).

### [Deadweight Loss (Units 2 & 6)](/ap-micro/key-terms/deadweight-loss)

A per-unit tax wedges apart the price buyers pay and the price sellers keep, so some mutually beneficial trades stop happening. Those lost trades are the [deadweight loss](/ap-micro/key-terms/deadweight-loss "fv-autolink") triangle, and you'll be asked to shade or calculate it.

### Price Elasticity of Demand and Supply (Unit 2)

[Elasticity](/ap-micro/unit-2/price-elasticity-demand/study-guide/kCV9eYI16fBj1nx9STCs "fv-autolink") decides who actually pays the tax. If demand is inelastic (think cigarettes or gas), consumers absorb most of it through higher prices. The legal payer and the economic payer are usually not the same.

### Monopoly Graphs (Unit 4)

Topic 6.4 makes you apply the tax in imperfect markets too. For a monopoly, the per-unit tax shifts MC up, the new MR = MC intersection happens at a lower quantity, and price is read off the demand curve, same logic, different graph.

## On the AP Exam

Multiple-choice questions ask you to identify what a per-unit tax does (shifts supply/MC up, reduces quantity, creates deadweight loss) and, very often, to compare it head-to-head with a lump-sum tax on a profitable monopoly. The classic correct answer is that the per-unit tax changes output and price while the lump-sum tax leaves them unchanged in the short run. On FRQs, the per-unit tax is a graphing workhorse. Expect to draw the shifted supply or MC curve, label the price consumers pay versus the net price firms receive, shade consumer surplus, producer surplus, tax revenue, and deadweight loss, and compute each area using ½ × base × height for the triangles. Practice the monopoly version too, since 6.4 explicitly tests government intervention across market structures.

## per-unit taxes vs Lump-sum tax

Both are taxes on firms, but they hit different cost curves. A per-unit tax scales with output, so it raises marginal cost (and ATC and AVC), shifts the supply/MC curve up, and changes the profit-maximizing quantity and price. A lump-sum tax is one fixed payment regardless of output, so it raises only fixed cost and ATC. Since MR = MC is untouched, the firm produces the same quantity at the same price and just earns less profit. Quick test on any exam question: if the tax changes quantity, it's per-unit; if quantity stays put, it's lump-sum.

## Key Takeaways

- A per-unit tax charges a fixed amount on every unit sold, which raises marginal cost and shifts the supply or MC curve up by exactly the tax amount.
- The tax drives a wedge between the price consumers pay and the net price firms keep, reduces equilibrium quantity, and creates deadweight loss.
- Tax incidence depends on elasticity, and the more inelastic side of the market (buyers or sellers) bears more of the tax burden.
- Government revenue from a per-unit tax equals the tax per unit times the new, lower equilibrium quantity, not the original quantity.
- Unlike a lump-sum tax, a per-unit tax changes a firm's profit-maximizing output, because it changes marginal cost rather than just fixed cost.
- In a monopoly, a per-unit tax shifts MC up, lowers output at the new MR = MC point, and raises the price read off the demand curve.

## FAQs

### What is a per-unit tax in AP Microeconomics?

It's a tax of a fixed dollar amount on each unit of a good sold (like $2 per pack of cigarettes). It shifts the supply or marginal cost curve up by the tax amount, raising the consumer price, lowering the price firms keep, reducing quantity, and creating deadweight loss.

### Does a per-unit tax change a firm's output, or just its profit?

It changes output. Because the tax raises marginal cost, the new MR = MC point happens at a lower quantity. That's the big difference from a lump-sum tax, which only cuts profit and leaves output alone.

### What's the difference between a per-unit tax and a lump-sum tax?

A per-unit tax depends on how much you sell, so it raises marginal cost and changes quantity and price. A lump-sum tax is one flat payment regardless of output, so it only raises fixed costs (EK POL-4.A.2). The monopoly comparison between the two is a favorite multiple-choice question.

### Who actually pays a per-unit tax, consumers or producers?

Both, and the split depends on elasticity. The more inelastic side bears more of the burden. If demand is perfectly inelastic, consumers pay the entire tax through a higher price, even though the firm writes the check to the government.

### How do I calculate deadweight loss from a per-unit tax?

Find the triangle between the original equilibrium quantity and the new (lower) taxed quantity, bounded by the demand and supply curves. Its area is ½ × (change in quantity) × (tax per unit). Tax revenue is the rectangle: tax per unit × new quantity.

## Related Study Guides

- [6.4 The Effects of Government Intervention in Different Market Structures](/ap-micro/unit-6/effects-government-intervention-different-market-structures/study-guide/Vo9KNzD2qK0rP6aGQkhe)

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