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 consumers of X pay $1.85 of the tax and the producers pay $0.15, we can conclude that the

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The fact that consumers bear the majority of the tax burden ($1.85 out of $2) indicates that the demand for product X is relatively inelastic. When demand is inelastic, consumers are less sensitive to price changes, and thus, are more likely to absorb a larger portion of the tax.

Suppose That Government Imposes a Specific Excise Tax on Product