FIGURE 8 TAX BURDEN WITH INELASTIC DEMAND AND ELASTIC SUPPLY
S0 is the initial supply curve for a product with inelastic demand. When a $1.25 excise tax is placed on the product, the supply curve shifts upward by the amount of the tax, to S0+tax. Assuming demand remains constant at D0, the new equilibrium will be at point g. Because this demand is inelastic, consumers are less responsive to the rise in price, and therefore bear a larger burden of the tax. And because the supply curve is elastic, producers are more responsive to changes in price, which also contributes to the tax burden shifting more toward consumers.