The burden of a tax is shared through producers and consumers. Under what conditions will consumers pay most of the tax? Under what circumstances will producers pay most of it? What determines the share of a subsidy which benefits consumers?
The burden of a tax and the benefits of a subsidy depend on the elasticity of demand & supply. If the ratio of the elasticity of demand to the elasticity of supply is small, the burden of tax falls mainly on consumers. Conversely, if the ratio of the elasticity of demand to elasticity of supply is large, the burden of the tax falls mainly on producers. Likewise, the benefit of a subsidy accrues mostly to consumers (producers) if ratio of the elasticity of demand to the elasticity of supply is small (large).