How does the price elasticity of demand affect the tax burden on consumers and producers?

The price elasticity of demand measures how much the quantity demanded of a product changes when its price changes. If demand is elastic, consumers will buy much less of a product if the price rises due to a tax, meaning the burden of the tax falls more on producers who have to absorb some of the cost. On the other hand, if demand is inelastic, consumers will continue to buy nearly the same amount even if prices go up, so they end up paying more of the tax. For example, if a tax is placed on a necessary medication, consumers might still buy it despite the higher price, leading them to bear most of the tax burden. Understanding this concept helps in analyzing how taxes affect both consumers and producers in different markets.