Given supply, the more inelastic the demand for a product, the larger the portion of an excise tax that is shifted to consumers.

Question

Quizplus · Accepted Answer

When demand is inelastic, consumers are less responsive to price changes and are willing to pay more for the product, thus they bear a larger portion of the tax burden. On the other hand, when demand is elastic, consumers are more sensitive to price changes and may choose to buy substitute products or reduce their consumption, causing the burden of the tax to shift more to producers.

Given Supply, the More Inelastic the Demand for a Product