Elasticity of Demand: This term refers to how responsive consumers are to changes in price. If demand for a product is elastic, it means that consumers are sensitive to price changes and may reduce their purchases if prices increase due to an excise tax.
Pigouvian Tax: A Pigouvian tax is an excise tax specifically designed to correct market failures caused by negative externalities. It aims to discourage activities that have harmful effects on society, such as pollution.
Incidence of Tax: The incidence of tax refers to who bears the burden of paying a particular tax. In the case of an excise tax, it can be shared between producers and consumers depending on factors like elasticity of demand and supply.