Final answer:
The vendor tax is based on tax incidence, which determines how the burden of a tax is divided between consumers and sellers in a market.
Step-by-step explanation:
A vendor or supplier is a term for the management of the supply chain and implies someone who offers products or experiential services.
The tax incidence on consumers is the difference between the price they pay and the initial equilibrium price, while the tax incidence on sellers is the difference between the initial equilibrium price and the price they receive after the tax is introduced.
The burden of the tax falls on the more inelastic side of the market. If the demand curve is more elastic than the supply curve, the tax burden falls disproportionately on consumers. On the other hand, if the supply curve is more elastic than the demand curve, the tax burden falls disproportionately on sellers.
By analyzing the elasticity of demand and supply, we can predict the likely impact of a tax on revenue. When both the demand and supply curves are very elastic, the imposition of a tax generates low revenue because consumers and sellers are more likely to reduce quantity instead of paying higher prices or accepting lower prices, respectively.