If the government imposes a $500 excise tax on SUVs and the demand curve for SUVs is downward-sloping,suppliers of SUVs will simply raise the price by $500 and consumers will bear the entire burden of the tax.

Question

Quizplus · Accepted Answer

The actual burden of an excise tax between consumers and producers depends on the relative elasticities of demand and supply. If demand is more elastic than supply, producers will bear a larger share of the tax burden. Conversely, if demand is less elastic, consumers will bear more of the tax burden. It's not automatic that consumers will bear the entire burden by a $500 price increase.

If the Government Imposes a $500 Excise Tax on SUVs