Examining the effect of an excise tax on an inelastic good – Cigarettes

This video lesson explains how a specific excise tax will affect the equilibrium price and quantity in the market for cigarettes, which is used to represents a good for which demand is relatively inelastic. We will also explain how the tax burden is shared by both producers and consumers, and the portion of the tax born by consumers depends on the elasticity of demand for the product.

 

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