Question

Suppose that the government imposes a tax of $1.00 on a litre of gas

If it is paid by both does the buyer pay 50 cents and the seller pay 50 cents?

Answer 1

No.

Even though the buyers and sellers both share the burden of the tax, it is not necessary that the tax burden is shared equally by them. The tax burden depends on the relative elasticity of demand and supply. The more inelastic side of the market bears the higher burden of the tax. So, if the elasticity of demand is lower than the elasticity of supply, the buyers pay a higher burden of the tax. On the other hand, if the elasticity of supply is lower than the elasticity of demand, the seller pays a higher burden of the tax.