When the demand for a product is less elastic than supply, what happens to tax burden distribution?

When the demand for a product is less elastic than supply, consumers experience a greater tax burden. This situation arises because a less elastic demand indicates that consumers are less sensitive to changes in price; that is, they will continue to purchase the product even if its price rises due to taxation. Consequently, when a tax is imposed, firms can pass a significant portion of that tax onto consumers in the form of higher prices.

In contrast, if supply is more elastic, producers are more responsive to price changes and may find it more challenging to pass on the entire tax burden. They may reduce production or switch to alternative goods if they cannot cover increased costs, which further enhances the pressure on prices for consumers.

Therefore, since consumers absorb a larger share of the tax burden when demand is less elastic than supply, it results in consumers paying most of the tax. This outcome reflects the fundamental economic principle regarding the distribution of tax burdens based on elasticity.