Final answer:
As demand becomes more inelastic, the incidence of a tax on a product shifts towards consumers, allowing producers to pass on more of the tax to buyers and resulting in consumers bearing a larger share of the total tax burden.
Step-by-step explanation:
When the demand for a product becomes more inelastic, and a tax is introduced, the incidence of the tax shifts more towards consumers. Inelastic demand means that consumers are less responsive to changes in price, including any price increases due to a tax. As a result, businesses can pass more of the tax burden to consumers in the form of higher prices without a significant reduction in the quantity demanded.
The degree to which the tax burden falls on consumers or producers depends on the relative elasticity of demand and supply. If the demand is more inelastic compared to the supply, consumers will bear most of the tax burden, as they are less likely to reduce their quantity demanded, even when the price rises. Conversely, if the supply were more elastic, producers would have more capacity to adjust their quantity supplied and would be more likely to absorb a larger share of the tax burden.
In the case of a supply schedule for a product where demand becomes more inelastic, the tax incidence primarily affects consumers, leading to higher prices paid by them and potentially higher tax revenue for the government. This is because the less responsive consumers are to price changes, the less they will reduce their purchase quantities, and the more effectively the tax can be collected.