Indirect tax + elasticity

• The key impacts of an indirect tax can vary depending on elasticity, focusing on consumer burdens, producer burdens, and government revenue.
• If demand is price elastic, the consumer burden is lower and the producer burden is higher.
• Government revenue is also lower when demand is price elastic as quantity falls proportionately greater than the increase in price.
• If demand is perfectly price elastic, the consumer burden is nothing and the producers take the entire burden.
• Producer burden is lower in a situation of price elastic supply as they will receive no government revenue.
• Government revenue is higher when demand is price inelastic because quantity has not fallen as much as the increase in price.
• If demand is perfectly price inelastic, the consumers will take the entire burden of the indirect tax.
• The producer burden is lower when demand is price inelastic because producers can raise their price a lot without a massive loss in demand.
• If supply is perfectly price inelastic, the supply curve cannot shift upwards, meaning the producer burden will be everything and there will be no consumer burden at all.
• In a situation of price elastic supply, the consumer burden is higher as a lot of the tax will be transferred to consumers via higher prices.
• Consumer burden is higher when demand is price inelastic because more units are subject to the indirect tax.
• If supply is perfectly price elastic, the change in equilibrium is exactly equal to the value of the indirect tax, meaning the consumer burden will be everything and the producer burden will be nothing.
• When the supply curve shifts upwards or shifts to the left, there will be absolutely no change in price, so the consumer burden is none and the producers take everything.
• Government revenue will be the lowest in that situation.
• When demand is price inelastic, the consumer burden is significantly higher.