Suppose that government imposes a specific excise tax on product X of $2 per unit and that the price elasticity of supply of X is unitary (coefficient = 1). If the incidence of the tax is such that the producers of X pay $1.9 of the tax and the consumers pay $0.1, we can conclude that the

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The price elasticity of supply is unitary, which means that a 1% increase in price will lead to a 1% increase in quantity supplied. The incidence of the tax is such that the producers of X pay $1.9 of the tax and the consumers pay $0.1, which means that the tax is mostly borne by the producers. This suggests that the supply of X is elastic, as the producers are willing to reduce their output in response to the tax.

Suppose That Government Imposes a Specific Excise Tax on Product