Pes= infinity) this means that output can be supplied at constant cost. The incidence of an indirect tax also depends on the coefficient of price elasticity of supply. In this situation, only a small proportion of the tax will be paid by the consumer. Ped1), then most of the incidence of a tax is absorbed by the producer.
This depends on the coefficient of price elasticity of demand. An indirect tax on producers increases their costs and this will lead to an inward shift of the supply curve. Once the tax is imposed, suppliers may then chose to pass on the tax to consumers by raising their selling price. The incidence of a tax refers to who eventually pays a tax.
Elasticity and Tax Incidence (Chains of Reasoning Revision Video) Suggested answer
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