Calculate how tax burden is distributed between consumers and producers
Tax Incidence: The analysis of who actually bears the burden of a tax, regardless of who is legally required to pay it.
Key Principle: The side of the market with more inelastic demand/supply bears a larger share of the tax burden.
Consumer Burden: Increase in price paid by consumers due to the tax.
Producer Burden: Decrease in price received by producers due to the tax.
Elasticity Rule: When demand is more inelastic than supply, consumers bear more of the tax burden, and vice versa.