in the last video we analyzed the impact of placing attacks on goods and services we saw that even when we put the tax on producers consumers ended up paying more for the product and when we put the tax on consumers producers still ended up with less so who really ends up paying the tax whose Pockets does it really come out of the answer is that it doesn't matter who we put the tax on the result will always be the same the tax incidence refers to the division of the burden of attacks on consumers and producers if consumers paid twenty dollars for a product before the taxes put on it but pay 25 after the taxes put on then the consumers are bearing five dollars of the tax burden if the tax was ten dollars it means the consumers and producers are splitting the burden evenly the consumers are paying half and the producers are paying half and it doesn't matter if the tax is legally placed on producers or consumers it will be the same outcome either way the economic incidence of the tax which is who ends up actually paying the tax is independent of the legal incidence of the tax which is who the law says must pay it markets will spread that burden between consumers and producers through adjustments in the market price another thing that's important to note is the excess burden of Taxation which is the deadweight loss due to the tax if there is a 10 tax on this product then the tax revenue is equal to the 10 tax times the quantity people buy with that tax in place but there is additional value being lost by consumers and producers that is the deadweight loss which represents the consumer and producer Surplus lost because the 10 tax makes those mutually beneficial trades impossible so will it always work out that consumers and producers split the tax burden equally nope take a look at the market now what changed demand got steeper meaning that the price elasticity of demand got smaller it got less elastic or more inelastic when demand is less elastic than Supply a greater share of the tax will fall on consumers this is the share of the tax which falls on consumers now because it is the increase in the price consumers will pay due to the tax compared to the market price when there's no tax and this is the share of the tax paid by producers which we can see is much less what if we flip this scenario when Supply is less elastic than demand producers will bear a larger share of the tax now consumers pay this much of the tax while producers pay this much larger share of the tax when it comes to taxes elasticity equals escape the more elastic your curve is the less of the tax you will end up paying the more inelastic curve pays a larger share of the tax in fact we can calculate the two shares with these equations the share of the tax paid by consumers will be the elasticity of supply divided by the elasticity of supply minus the elasticity of demand likewise the share of the tax paid by producers is the negative of the elasticity of demand divided by the elasticity of supply minus the elasticity of demand notice that for the consumer share the elasticity of supply is in the numerator well for the producer share the elasticity of demand is in the numerator here's an example of these calculations if the price elasticity of supply is 0.8 meaning Supply is inelastic while the price elasticity of demand is negative 1.2 meaning demand is elastic then consumers will end up paying 40 of the tax we find that by taking 0.8 and dividing it by 0.8 minus negative 1.2 likewise producers will pay 60 of the tax which we can find by taking negative negative 1.2 which is positive 1.2 and dividing it by 0.8 minus negative 1.2 so if this was the data for a ten dollar tax on this product we would know that the price ends up being four dollars higher for consumers while producers earn six dollars less meaning that consumers pay 40 percent of the tax and producers pay the other 60 percent