supply curve to shift up by the amount of the tax to The new
equilibrium is at The consumer price rises to the seller price falls
to and the quantity falls to Sellers bear little of the burden of the
tax in the first case (and consumers bear a lot), whereas consumers bear
little of the burden in the second case (and sellers bear a lot).
When demand is inelastic relative to supply, consumers bear most of the burden of excise
taxes. When supply is inelastic relative to demand, producers bear most of the burden.So, who really pays for increases in a gasoline tax? The demand for
gasoline is inelastic in the short run, both overall and relative to supply.
The result is that consumers bear most of the burden of gasoline taxes.
Over time, however, as consumers adapt their behaviour and use more
substitutes, the demand for gasoline becomes more elastic. Over time,
therefore, more of the burden of a gasoline tax falls on producers.
Sā².
E 1. pc,
pS, Q 1.