Final answer:
Whether a $2 tax on producers or consumers has the same effect depends on the elasticity of demand and supply. Inelastic demand means consumers bear the burden; inelastic supply means producers do. Elasticity impacts whether taxes translate into higher prices or lower quantities sold.
Step-by-step explanation:
The question of whether a $2 tax levied on producers has the same effect on buyers and sellers as a $2 tax levied on consumers involves the concept of tax incidence. Tax incidence refers to how the burden of a tax is divided between consumers and producers. When analyzing tax incidence, one must consider the elasticity of demand and supply. For instance, with cigarette taxes, demand is highly inelastic, meaning consumers tend to absorb most of the tax burden through higher prices because their quantity demanded doesn't change much in response to price increases.
On the other hand, if suppliers have inelastic supply, such as with beachfront hotels where alternatives are limited, producers bear more of the tax burden. The elasticity of supply and demand dictates who will be affected more by the tax. If supply is elastic, producers can change their business to avoid the taxed good, thus transferring less of the burden to consumers. Elasticity determines whether a tax results in higher prices (tax passed to consumers) or lower quantity sold (tax burden on sellers).