1. Elasticity and Excise Taxes Who ends up paying for an excise tax?1

2. EXCISE TAX ON CIGARETTESP
Demand- Inelastic
Supply- Unitary
$10 8 6 5 4 2 S CS
$2 TAX on Producers D 8 10 Q 2

3. EXCISE TAX ON CIGARETTESP S1
$10 8 7 6 5 4 2 S
CS After
$6.50 =Pconsumers
Amount Consumers Pay
$2 TAX on Producers
$4.50 = Pproducers
Amount Producers Pay D 9 10 Q
Quantity Doesn’t Fall VERY Much!!! 3

4. EXCISE TAX ON YACHTS $2 TAX on Producers 5 P $10 8 6 4 2 S D 8 10 Q
Demand- Elastic
Supply- Unitary
$10 8 6 5 4 2 S
$2 TAX on Producers D 8 10 Q 4

5. EXCISE TAX ON YACHTS $2 TAX on Producers 5 P S1 $10 8 S 6 4 2 Pc Pp D
DWL? Pp D 7 10 Q
Quantity Falls A lot!!! 5

6. EXCISE TAX ON CIGARETTESP S1
$10 8 7 6 5 4 2 S
CS After
Pconsumers = $7
Tax per Unit?
Total Tax Revenue?
Tax paid by consumers?
Tax paid by producers?
Total spending?
Revenue for businesses?
Pproducers = $4 D 20 30 Q 6

7. EXCISE TAX ON CIGARETTESP S1
$10 8 7 6 5 4 2 S
CS After
Pconsumers = $7
Tax per Unit = $3
Total Tax Revenue = $60
Tax Paid by Consumers = $40
Tax Paid by Producers = $20
Total Spending = $140
Revenue for Businesses=$80
Pproducers = $4 D 20 30 Q 7