Final answer:
A tax on sellers affects market equilibrium, changing prices for consumers and sellers. Tax incidence and revenue largely depend on the elasticity of demand and supply, with tax burdens varying accordingly.
Step-by-step explanation:
When a tax is imposed on sellers of a product, it affects the market equilibrium, altering the prices paid by consumers and received by sellers. The impact of this tax is referred to as tax incidence. Tax revenue is calculated by the tax per unit times the total quantity sold, and is represented graphically by a shaded area. Tax incidence can fall more heavily on either consumers or sellers, depending on the relative elasticity of demand and supply curves.
In a market where supply is relatively more elastic than demand, such as the case of the tobacco excise tax, sellers can more easily avoid the tax by reducing the quantity sold, which means the burden falls more on consumers. In contrast, if the supply is inelastic, such as with beachfront hotels, sellers cannot reorganize as easily and therefore bear more of the tax burden. Ultimately, how a tax affects the market and whether it generates substantial revenue depends on the demand and supply elasticity.