Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of demand for X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.75 of the tax and the consumers pay $0.25, we can conclude that the

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When the producers bear the majority of the tax burden ($1.75 out of $2), it indicates that the supply of product X is relatively inelastic. This is because producers cannot easily adjust their quantity supplied in response to the tax, leading them to absorb a larger portion of the tax burden.

Suppose That Government Imposes a Specific Excise Tax on Product