We've seen that relative elasticities affect how the burden of an excise tax is distributed. Now we consider the effect of elasticities on surplus, tax revenue and deadweight loss.

    We begin with the same supply curve but with a more inelastic demand curve, shown to the right. As before, we show consumers' surplus as the green shaded area and producers' surplus as the yellow shaded area. Equilibrium price before the tax is, as before, $4.50 and quantity is 60.

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