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How does elasticity of demand and supply affect tax incidence?

Posted on April 16, 2014 at 11:10 AM

When the price elasticity of demand and supply are the same, then the buyer and seller share the tax burden equally.


Tax incidence on the buyer: If the demand curve is more inelastic (relatively steeper) than the supply curve, the buyer will pay a greater portion of the tax than the seller.


Tax incidence on the seller: If the supply curve is more inelastic than the demand curve, the seller will pay a greater portion of the tax than the buyer.


AP Microeconomics Unit 4 Role of Government

Categories: AP Microeconomics, Micro Unit 4 Role of Government

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