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The analysis, or method, of how a tax burden is divided between buyers and sellers is called tax incidence. Usually, the tax incidence, or burden, falls both on the buyers and sellers of the taxed commodity.

Buyers incur the majority of the tax cost when demand is more inelastic than supply, while suppliers suffer the majority of the tax burden when supply is more inelastic than demand. If demand is inelastic, customers are not as susceptible to price fluctuations as they are when demand is elastic, and the quantity demanded drops only somewhat when the tax is imposed. With less of a drop in the equilibrium quantity, the government can transfer the tax burden on to buyers in the way of increased prices. The tax burden on suppliers would be much lower and the tax burden on buyers would be much higher if the supply of a taxable commodity was elastic and suppliers could rearrange their operations to avoid selling the taxed good. Instead of reducing pricing, the tax would lead in a far lesser quantity sold.