Indirect Tax & Tax Incidence Diagram Maker
Indirect tax diagrams demand precision: the supply curve shifts up by exactly the tax, the new equilibrium splits the burden between consumers and producers, and the revenue rectangle plus DWL triangle must sit in exactly the right cells. Elasticity determines who pays more, the analytical heart of the question.
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IB EconGraph AI keeps the geometry consistent (the vertical gap between S and S+tax stays equal to the tax) and the shading tools make incidence areas unambiguous.
What the tax incidence diagram shows
A specific (per-unit) tax diagram shows:
- S and S + tax: the supply curve shifts vertically upward by the tax per unit (parallel for a specific tax, diverging for ad valorem).
- New equilibrium: higher consumer price Pc, lower quantity Qt; producers receive Pp = Pc − tax.
- Consumer incidence: the rectangle between the original price P* and Pc across Qt.
- Producer incidence: the rectangle between P* and Pp across Qt.
- Government revenue and DWL: revenue = tax × Qt (both incidence rectangles combined); the welfare-loss triangle sits between Qt and Q*.
How to draw it in IB EconGraph AI
- Use the "Tax Incidence" template, or prompt: "specific tax on cigarettes showing incidence on consumers and producers".
- Verify the vertical distance between S and S+tax equals the tax everywhere, drag with snapping if you adjust manually.
- Mark P*, Pc, and Pp with dotted lines; label Qt and Q* on the quantity axis.
- Shade consumer incidence and producer incidence in different colours, then the DWL triangle.
- For elasticity analysis, flatten or steepen the demand curve and watch the incidence split change, great for screenshots of both cases.
IA & exam tips
- Sugar taxes, fuel duties, and tobacco excises are perennial IA topics, this diagram plus elasticity commentary is the expected core.
- PED vs PES rule: the more inelastic side bears more of the tax. Draw two versions to demonstrate it rather than just asserting it.
- Ad valorem taxes pivot the supply curve rather than shifting it in parallel, mention and draw the difference for top-band analysis.
Frequently asked questions
Can it draw ad valorem taxes?
Yes, ask for an ad valorem (percentage) tax and the shifted supply curve diverges from the original instead of staying parallel.
How is a subsidy different?
A subsidy shifts supply down by the subsidy per unit, see the dedicated subsidy diagram page for the mirrored analysis.
Can I show government revenue?
Yes, shade the rectangle (tax × new quantity) with the fill tool; split it into the consumer and producer portions with two colours.
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