Taxes

incidence

a measure of who really pays a tax

excise tax

a tax on sales of a good or service; drives a wedge (equal to the size of the tax) between the price paid by consumers and the price received by producers; creates missed opportunities. ex: gas, cigarettes

when the price elasticity of supply is higher than the price elasticity of demand, the burden of an excise tax falls mainly on

consumers

what is the result of an excise tax's wedge?

consumers pay more and producers receive less

the revenue collected by an excise tax is ________ to the area of the rectangle (whose height is the tax wedge between the tax wedge between the supply and demand curves and whose width is the quantity transacted under the tax

equal

when the price elasticity of demand is higher than than the price elasticity of supply, the burden of an excise tax falls mainly on

producers

what determines how the burden of an excise tax is allocated between consumers and producers?

the incidence of an excise tax depends on the price elasticity of supply and the price elasticity of demand