Figure 15.8
In the above figure, supply curve S is perfectly elastic and
demand curve D
1
is relatively inelastic. The incidence of a tax P1T
will
be wholly upon the buyer, as the price will rise by the full
amount of the tax to P
1
M
1
. (The rise in price is equal to P
1
T, the tax
amount). Under
a perfectly elastic condition, the seller would not
accept
any price less than P
1
M
1
and would decrease the supply
curve, therefore, shifts to S
1
to allow for the increased cost resulting
from P
1
T tax, which is shifted completely to the buyer.
(viii) When the supply is perfectly inelastic
and demand is elastic,
the whole incidence will be on the seller.
Figure 15.9
In the above figure, supply curve S is perfectly inelastic and
demand curve D is relatively elastic. The incidence of a unit tax PT
will be wholly upon the seller,
as supply being fixed, OM with a
given demand, the price inclusive of tax PT remains unchanged at
OP (that means the tax burden is entirely borne by seller). Here,
seller
cannot adjust supply; therefore, whole incidence PABT will be
on him.
In summary
(i)
When ed = α, or es = 0: the whole incidence is on sellers.
(ii)
When es = α, or ed = 0: the whole incidence is on buyers.
(iii) When es = ed: the incidence is equally divided between
buyers and sellers.
(iv) When es > ed: greater incidence falls upon the buyers.
(v) When ed > es: greater incidence falls upon the sellers.
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