Tax revenue is calculated as the product of the tax per unit and the quantity sold after the tax is imposed. Graphically, this is represented by a rectangle where the height is the tax amount (the vertical distance between the supply and demand curves at the new equilibrium quantity) and the width is the new quantity traded. In standard diagrams, this rectangle corresponds to the area between the supply and demand curves.

Without a tax, the producer surplus is the entire area located above the supply curve and below the market equilibrium price. This area represents the total benefit producers receive from selling their goods at the market price, calculated as the difference between the market price and the marginal cost of production for all units sold up to the equilibrium quantity.

In the long run, both demand and supply for goods like petrol become more elastic as consumers and producers have more time to adjust their behavior (e.g., switching to electric vehicles or fuel-efficient alternatives). Increased elasticity leads to a larger change in quantity traded when a tax is imposed, which directly results in a larger deadweight loss compared to the short run where behavior is more rigid.

Tax incidence refers to the actual economic burden of a tax. The distribution of this burden between buyers and sellers depends on the relative price elasticities of demand and supply. If demand is more inelastic than supply, consumers bear more of the tax burden. Conversely, if supply is more inelastic, producers bear more of the burden, regardless of who is legally responsible for remitting the tax payment.

Tax incidence is determined by the relative elasticities of supply and demand. The party with the more inelastic curve bears a larger share of the tax burden because they are less able to change their quantity demanded or supplied in response to the price change caused by the tax. If sellers bear more of the tax, it implies the supply curve is relatively more inelastic than the demand curve.

Import tariffs function as a tax on imported goods, which increases the retail price for consumers. Because lower-income households spend a larger percentage of their total income on basic goods—many of which are imported—tariffs act as a regressive tax. This means the financial burden of the tariff represents a higher proportion of income for the poor compared to the wealthy, who spend a smaller share of their income on such goods.

When demand is elastic, consumers are highly sensitive to price increases and will significantly reduce their quantity demanded if prices rise. If supply is inelastic, producers cannot easily adjust their output levels in response to the tax. Consequently, sellers must absorb a larger portion of the tax to maintain sales volume, as they cannot pass the cost onto consumers without losing significant demand.

When a tax is imposed on sellers, it increases the cost of production for every unit sold. To maintain the same level of profit, sellers must receive a higher price for each quantity supplied. This effectively shifts the supply curve vertically upward by the exact amount of the tax per unit, reflecting the increased cost burden on the supply side of the market.

In an efficient market, the price reflects the marginal benefit to consumers and the marginal cost to producers. Taxes create a wedge between the price paid by buyers and the price received by sellers. This wedge prevents the market from reaching the efficient equilibrium where marginal benefit equals marginal cost, thereby creating a deadweight loss and reducing total economic surplus.

Deadweight loss is minimized for goods with inelastic demand, such as salt or petrol, where consumption does not change much with price. Cruise line tickets are luxury goods with highly elastic demand; therefore, a tax on them causes a significant reduction in quantity demanded, leading to a larger deadweight loss.