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 $1.80 of the tax and the producers pay $.20, we can conclude that the

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When consumers bear most of the tax burden, it indicates that the supply is more elastic than the demand. Since the demand is unitary elastic, the supply must be highly elastic for consumers to pay $1.80 of the $2 tax.

Suppose That Government Imposes a Specific Excise Tax on Product