The incidence of an excise tax
A) refers to who really pays it
B) always falls on suppliers
C) is equally divided between demanders and suppliers
D) is determined by the number of demanders
E) is decided by the government when the tax is imposed

Question

Quizplus · Accepted Answer

The incidence of an excise tax refers to who really pays it, and it can fall on either suppliers or demanders depending on the elasticity of their respective responses to the tax. If demanders are more sensitive to price changes than suppliers, the tax burden falls on suppliers, while if suppliers are more sensitive than demanders, the tax burden falls on demanders. Ultimately, the incidence of the tax is determined by the relative elasticities of supply and demand, and the actual division of tax burden may vary depending on market conditions.

The Incidence of an Excise Tax