Sharing of the Tax Burden

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Presentation transcript:

Sharing of the Tax Burden Perfectly elastic supply

If supply is perfectly elastic, Q S0 D Q1 P1 S1 t

But the producer receives the same price. If supply is perfectly elastic, the consumer pays P2 for every unit of the good, But the producer receives the same price. D P Q P2 S1 Q2 P3 = P1 S0 Q1

but producer receives the same price. If supply is perfectly elastic, the consumer pays P2 for every unit of the good, but producer receives the same price. The consumer bears the whole tax burden. P Q S0 D Q1 P1 S1 Q2 P2 P3 = Consumer’s Share