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What is Understanding Tax Incidence Explained about?

A tax incidence describes how the burden of a new tax is divided between producers and consumers. It depends on the price elasticity of supply and demand - if supply is more elastic than demand, consumers bear more of the tax burden, and vice versa. Inelastic goods like cigarettes pass nearly all the tax onto consumers, while elastic goods like jewelry see producers take on more of the tax burden through price reductions.

Author

Junaid Khan

Language

EN