Unit tax
Also called: Specific tax, per-unit tax · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"; Class 12, Ch 5 "Market Equilibrium"
Meaning
A unit tax, also called a specific or per-unit tax, is a fixed amount of tax charged on each unit sold. A tax of ₹t per unit raises both average cost and marginal cost by exactly t at every output. So the supply curve shifts left, and up by t, as a parallel shift. The firm's shut-down price also rises by t. A per-unit subsidy works in reverse and shifts supply right.
Example
A ₹2 tax on 10 units sold means ₹20 of tax. In India, central excise on petrol and diesel is charged in ₹ per litre, so it is a unit tax. PLI (Production Linked Incentive) payments per unit of extra sales work like a negative unit tax.
Don't confuse with
- Ad valorem tax: this is a percentage of the price, such as GST. The tax amount grows as the price rises, so the supply curve pivots (the gap widens at higher prices) instead of shifting in parallel.