When the demand for a product is more elastic than the supply, who bears the majority of the tax burden?

When demand for a product is more elastic than supply, firms bear the majority of the tax burden. This situation arises because elastic demand indicates that consumers are highly sensitive to price changes. When a tax is imposed, consumers will significantly reduce their quantity demanded in response to a price increase, meaning that the demand curve is steep and consumers will quickly shift away from the product if prices rise.

On the other hand, if supply is inelastic, this means that producers are less responsive to price changes and will not reduce the quantity supplied significantly when faced with a tax. Consequently, firms cannot pass much of the tax onto consumers without causing a substantial decrease in sales.

In essence, since consumers can easily shift their purchasing behavior away from the taxed good, firms find it challenging to pass on the tax costs. As a result, they absorb a larger portion of the tax burden themselves. This dynamic illustrates the relationship between elasticity of demand and supply and the distribution of tax burdens in a market.