Tax incidence effect on elasticity of supply

Question

Hi guys

I want to ask, when the supply is price elastic, and the consumer is inelastic, when there is a tax incidence, how does the effect of the tax affect the supply? Does the supply change?

From wikipedia, when you look at the graph about inelastic demand, elastic supply, the supply remains the same, but I thought that if the supply was price-elastic, since the price went up because of the tax, shouldn't the supply change?

Answer 1

Remember usually the tax apply to purchase of products impact only a customers and the seller or producer only is an agent of recaude. A percentage of income of producer is tax income and it must give it to government; in this transactions producers do not lose money. All this mean the elasticity of supply is not impacted for this kind of tax.

There is other kind of taxes appllied only to producers, these increase the costs of produce goods and services and reduce the elasticity of supply of each producer. The changing in elasticity mean the curve of supply change too and the customers have to take new decitions in the market because now they are in front a different function of supply...the consequence will be some customers will decide not buy the product more...they are affected indirectly by the taxes to producers...