What if supply is relatively inelastic? The graph to the right illustrates a market with fairly inelastic supply, but with the same, fairly elastic demand curve used on pages 7 and 8. In this case, we find that if supply is relatively inelastic market price rises very little relative to the size of the excise tax. In fact, it increases from $4.50 to only $5.15. Of the $4.00 tax the consumer burden is only 65¢.

    Inelastic supply suggests that this is a product for which production can't be quickly increased, and a product that is perishable, or at least very costly to store. This means that firms have little choice but to sell available output, whatever the market price. This lack of flexibility sticks them with a large tax burden of $3.35, in this instance.

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