Price Elasticity Of Demand And Its Impact On Indirect Tax

With the use of diagrams, explain how the price elasticity of demand for a product influences the incidence of an indirect tax on that product?Price elasticity of demand for a good is a measure of the degree of responsiveness of quantity demanded to a change in the price,ceteris paribus. It determines whether the demand of a good is elastic or inelastic. An indirect tax is imposed on goods and services, which increases the cost of production and can be passed on to consumers through higher prices. The incidence of indirect tax depends on price elasticity of demand. When the PED of a good is between 0 and -1, the demand for the good is said to be inelastic. When a good is price inelastic, the burden of indirect tax can easily be passed on to consumers through higher prices, as it will not cause a significant fall in demand.After an indirect tax is imposed on a product, its production cost increases, resulting in a decrease in production and a negative shift of the supply curve from S without tax to S with tax. Due to a decrease in supply, the price will increase from P without tax to P with