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Dalton's law


Definition

The burden of transaction tax is shared with the relative size of the supply and demand elasticities.


In functional form, let ps, pm be the percentage of price for producer and demander, respectively. We have:


ps / pm = demand elasticity / supply elasticity.


Implication: the agent with more inelastic elasticity bears more of the tax burden.


Note

Source: https://www.gtap.agecon.purdue.edu/AgEc618/modules/readings/Daltons_Law.pdf


Example