... is reached at P2, Q2; with P1, Q1 being the original equilibrium. (Fig 2.). Because the increase in price is not as high as the increase in tax the consumer is not paying all of the tax, thus the tax burden is split between the producer and the consumer. Nevertheless, this split is rarely equal. It depends on how elastic a product is as to how much tax is paid by each faction. In the case of an elastic good, the producer will pay more of the tax; as if the prices are raised by a small amount then the demand will fall by a great amount (fig 3.). In the case of an inelastic good, the consumer will pay more of the tax, as if the price is raised by a large amount the demand for that product will not fall by enough for the producer to want to ...

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