When the government decides to impose a tax on sellers of a good or service, sellers try to pass the tax on to consumers by raising the price of the good being sold.Therefore, assume the government decides to place a $1 tax on a unit of a good sold, for example there are excise taxes on gasoline, tobacco alcohol, and tires.

(a) Let us take the example of tires sold in the US and using the simple model of supply and demand, illustrate what would happen to the price and quantity of say tires sold as the tax is applied.

b. From your analysis in (a) would the amount of tax paid by the consumer (as opposed to the producer or seller) be greater when demand is elastic or inelastic? Why?