How can we use price elasticity of demand to determine the incidence of a tax on a good?

We can determine weather the burden of a tax will fall on consumers or suppliers by looking at the price elastcity of demand. Although both groups will usually share the incidence of the tax, the group with the more inelastic curve will bear most of the burden. Price elasticity is defined as a measure of the responsiveness of either demand of supply to a change in the price of the good. This is the formula to culculate the price elastcity of demand PED = %ΔQD/%ΔP and it represents the percent change in quantity demanded divided by the percent change in price. (further details can be given to calculate the % changes if required) If the absolute value of PED is greater than one, then demand is said to be elastic. This means that for every change in price, there is a relatively greater change in quantity demanded. If the absolute value of PED is smaller than one, then demand is inelastic. This means that for every change in price, there is a relatively smaller change in quantity demanded. (A diagram can be drawn comparing the change in quantity demanded after a price increase for an inelastic demand curve and an elastic demand curve) If a good has an inelastic demand curve, this means that consumers are not very responsive to price changes. Therefore an increase in price due to a tax will lead to a relatively smaller decrease in quantity demanded. An example of a situation where this may occur is in the tobacco market. If a tax is placed on tobacco, since consumers are addicted, quantity demanded will remain relatively unchanged while the price they pay increases significantly meaning that majority of the burden of the tax will fall on them. (A diagram can be drawn showing how tax incidence is split between consumers and producers for inelsatic PED) Explanation can be reversed to show the incidence of a tax on a good with elastic PED.