Assume that at current production and consumption levels, a product exhibits price elasticity of demand equal to 1.20 and elasticity of supply equal to 1.45. The true economic consequences of taxes imposed on the seller of such a product are most likely borne:
Explain the impact of taxes on supply, demand, and market equilibrium, and describe tax incidence and its relation to demand and supply elasticity. As the good exhibits neither perfectly elastic nor perfectly inelastic demand or supply (see pp.27-28), the incidence of taxation will be shared by buyers and sellers regardless of whether the tax is placed on buyers or on sellers.