demand is perfectly inelastic when shifts

Cigarette taxĭemand for cigarettes is very price inelastic. In this case, a higher percentage of the tax burden is borne by the consumer. The tax increases the market price from £17 to £25. The consumer only pays a small percentage.

However, the tax incidence is mostly borne by the producer.

In this case the total tax revenue = £7 * 70 = £490.

The total producer burden is £6 * 70 = £420.

After the tax is paid to the government, they are left with £14. The producer burden of the tax is the lost revenue to the firm.Therefore, the consumer burden of the tax is £1 x 70 = £70.The total consumer burden is the total amount of tax paid for by consumers. The consumer burden is the extra amount the consumers pay.There is only a small rise in price and a bigger percentage fall in demand. The diagram on the right, demand is price elastic.

A tax of £6 causes the price to rise from £10 to £14. In the diagram on the left, demand is price inelastic. The producer burden is the decline in revenue firms face after paying the tax.The consumer burden of a tax increase reflects the amount by which the market price rises.The tax incidence depends upon the relative elasticity of demand and supply. Tax incidence refers to how the burden of a tax is distributed between firms and consumers (or between employer and employee).

Demand is perfectly inelastic when shifts