Given demand, the more inelastic the supply of a product, the larger the portion of an excise tax that is borne by producers.

Question

Quizplus · Accepted Answer

Inelastic supply means that producers cannot easily increase production in response to an increase in the cost of production (such as an excise tax). This means that producers are less able to absorb the additional cost and are more likely to pass it on to consumers in the form of higher prices. Therefore, a larger portion of the tax burden is shifted onto consumers.

Given Demand, the More Inelastic the Supply of a Product