When a tax is imposed on the producers of a product, if the supply curve is relatively elastic, the burden borne by consumers increases.

Question

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When the supply curve is relatively elastic, producers are more sensitive to changes in price, and may choose to reduce production or shift their resources to producing other goods if they face higher costs due to the tax. As a result, the price of the product is likely to increase less than if the supply curve were relatively inelastic, and consumers bear a greater share of the tax burden. When the supply curve is relatively elastic, producers have more flexibility to adjust their prices to offset the burden of the tax. This means that they will increase the price less and pass on more of the tax burden to consumers. In contrast, when the supply curve is relatively inelastic, producers have less flexibility to adjust their prices, so they will increase the price more and pass on less of the tax burden to consumers.

When a Tax Is Imposed on the Producers of a Product