Explore BrainMass

Explore BrainMass

    Use of excise taxes on goods that have inelastic demand

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Government imposes excise taxes on goods that have inelastic demand, such a cigarettes, more often than in other cases. Why? Explain using the elasticity concept.

    © BrainMass Inc. brainmass.com December 24, 2021, 6:38 pm ad1c9bdddf
    https://brainmass.com/economics/elasticity/use-of-excise-taxes-on-goods-that-have-inelastic-demand-128148

    Solution Preview

    Tax incidence describes how the burden of a tax is distributed between buyers and sellers. It depends strongly on the elasticity of the demand curve, which measures how changes in price affect demand. Thus the portion of the tax pre­sumed to be paid by the buyer or the seller varies depending on the responsiveness of the demand for and the supply of the product as the price changes. In a chart, this is reflected in the steepness of the demand and supply curves.If the demand curve slopes downward and the supply curve slopes upward, sellers cannot raise the price by the full amount of the tax. Sellers and consumers share the burden of ...

    Solution Summary

    How elasticity of demand affect tax incidence.

    $2.49

    ADVERTISEMENT