Question

Say good X tends to be a relatively price-elastic good (demand is more price elastic than supply). Say the government imposes an excise tax on every unit of X buyers buy. The burden of this tax will probably fall more heavily on:

sellers (gas stations)

hard to say

both sellers and buyers equally

buyers

Answer 1

When good X tends to be a relatively price-elastic good (demand is more price elastic than supply). The burden of tax will fall more heavily on sellers.

As seen from the image below, the demand curve is more elastic than the supply curve.

Inititally the equilibrium quantity is Qe and equilibrium price is Pe.

When the govt imposes an exicise tax. The quantity demanded falls to Qt and price increases to Pt.

The total govt revenue is the area A + B.

The tax incidence fallen on the customer is the difference between price paid Pc and the equilibrium price Pe.(Which is represented by A)

The tax incidence fallen on the seller is the difference between price Pp and the equilibrium price Pe.(Which is represented by B).

Since demand is more elastic than supply , one can see that the area represented by A is less than the area represented by B.

It implies that the sellers have to pay more heavily than the buyers due to the imposition of tax.

Hence the burden of tax will fall on the sellers.