Determine incidence of tax when demand is price inelastic

Determine incidence of tax when demand is price inelastic

 

From the graph, when the tax is imposed on the producer, the supply curve shits to the left from S0 to S1 (decrease in supply).The total tax is ACThe proportion of the tax paid by the consumer is AB and that of the producer is BC. Since AB is greater than BC, it means that the consumer bears a bigger tax burden than the producer.

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