Given supply, the more inelastic the demand for a product, the larger the portion of an excise tax that is shifted to consumers.

Question

Quizplus · Accepted Answer

When demand is inelastic, consumers are less sensitive to price changes, meaning they will continue to buy the product even when prices rise. Therefore, producers can pass a larger portion of an excise tax onto consumers without significantly reducing the quantity sold.

Given Supply, the More Inelastic the Demand for a Product