If a quantity tax is collected from competitive suppliers of a good, placing a tax on the good causes the price paid by consumers to increase more than if the tax had been collected directly from the buyers.

Question

Quizplus · Accepted Answer

When a quantity tax is imposed on suppliers in a competitive market, the tax burden is shared between suppliers and consumers depending on the elasticities of supply and demand. The price paid by consumers does not necessarily increase more than if the tax were collected from buyers; the distribution of the tax burden depends on the relative elasticities of supply and demand, not on who the tax is collected from.

If a Quantity Tax Is Collected from Competitive Suppliers of a Good