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 consumers pay $0.20 of the tax and the producers pay $1.80, we can conclude that the

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When the incidence of the tax falls more heavily on producers ($1.80) than on consumers ($0.20), it indicates that the supply of product X is relatively inelastic compared to its demand. This is because producers are unable to pass on much of the tax to consumers, likely due to the inability to reduce their quantity supplied significantly in response to the tax.

Suppose That Government Imposes a Specific Excise Tax on Product