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 $1.8 of the tax and the producers pay $0.2, we can conclude that the

Question

Quizplus · Accepted Answer

Since consumers bear most of the tax burden, the supply of X is more elastic than the demand.

Suppose That Government Imposes a Specific Excise Tax on Product