4.3 Elasticity Matters for Excise Taxes
LO 4
The distribution of the burden of an excise tax between consumers
and producers depends on the relative elasticities of supply and
demand for the product.
The more inelastic demand is relative to supply, the more of the
burden of an excise tax falls on the consumers. The more elastic
demand is relative to supply, the more of the burden of an excise tax
falls on producers.