Understanding an Economic "Wedge"

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In an economic context, a "wedge" is the gap between the price paid by the buyer (i..e price to the consumer or demand price" and price received by the seller (i.e. price to the producer or supply price) in an exchange. In a free market, there is no wedge since all payments from the buyer do go directly to the seller of a product, but a wedge can exist, for example, in markets where a tax is paid to a third party.

 In such cases, the wedge exists in the amount of the tax (per unit) and represents the distance between the demand and supply curves at the equilibrium quantity in the market with the tax.

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Econterms. "Understanding an Economic "Wedge"." ThoughtCo, Feb. 25, 2017, thoughtco.com/wedge-economics-definition-1147339. Econterms. (2017, February 25). Understanding an Economic "Wedge". Retrieved from https://www.thoughtco.com/wedge-economics-definition-1147339 Econterms. "Understanding an Economic "Wedge"." ThoughtCo. https://www.thoughtco.com/wedge-economics-definition-1147339 (accessed April 25, 2018).