Assume the demand for automobile tires is highly inelastic and that the supply is highly elastic.The burden of a $2 excise tax on each tire will be:

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Since the demand for automobile tires is highly inelastic, a change in price (due to the excise tax) will result in a relatively smaller change in the quantity demanded. Therefore, buyers are likely to bear the burden of the tax, as they will not be able to easily find substitutes for the tires they need. On the other hand, the supply of automobile tires is highly elastic, which means that producers can easily shift production to other products, or reduce production altogether, in response to changes in the market. This suggests that sellers will not be as affected by the excise tax as buyers will be. Therefore, the burden of the $2 excise tax on each tire will be borne primarily by buyers of tires.

Assume the Demand for Automobile Tires Is Highly Inelastic and That