Authors libby rittenberg 816
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Figure 15.8 "Tax Incidence and the Elasticity of Demand and of
Supply" shows how tax incidence varies with the relative elasticities of
demand and supply. All four panels show markets with the same initial
price, P1, determined by the intersection of demand D1 and supply S1. We
impose an excise tax, given by the vertical green line. As before, we insert
this tax wedge between the demand and supply curves. We assume the
amount of the tax per unit is the same in each of the four markets.
Figure 15.8 Tax Incidence and the Elasticity of Demand and of Supply
We show the effect of an excise tax, given by the vertical green line, in
the same way that we did in Figure 15.7 "Tax Incidence in the Model of
Demand and Supply". We see that buyers bear most of the burden of
such a tax in cases of relatively elastic supply (Panel (a)) and of
relatively inelastic demand (Panel (d)). Sellers bear most of the burden
in cases of relatively inelastic supply (Panel (b)) and of relatively
elastic demand (Panel (c)).
In Panel (a), we have a market with a relatively elastic supply curve S1.
When we insert our tax wedge, the price rises to P2; the price increase is
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
816
