The price that buyers pay and the price that sellers receive in the presence of an excise tax are unaffected by which of these groups officially pays the tax.

Question

Quizplus · Accepted Answer

The incidence of an excise tax (i.e. who ultimately bears the burden of the tax) depends on the relative elasticities of supply and demand. However, the price that buyers pay and sellers receive will be the same regardless of which group officially pays the tax. The tax simply shifts the supply curve upward and thus raises the equilibrium price paid by buyers and lowers the equilibrium price received by sellers.

The Price That Buyers Pay and the Price That Sellers