Term
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Definition
| Elasticity is a term used to refer to a degree of sensitivity of the quantity demanded or supplied. |
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Term
| In mathematical terms, how is elasticity derived? |
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Definition
| Elasticity is the percentage change in one quantity divided by the percentage change in another quantity |
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Term
| When is demand considered to be elastic? |
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Definition
Demand is elastic when the quitient of the percent change in quantity demanded divided by the percent change in price is greater than 1.
This means that the demand is of a commodity is very reponsive to changes in the price of the commodity. |
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Term
| When is demand considered to be inelastic? |
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Definition
Demand is inelastic when the quitient of the percent change in quantity demanded divided by the percent change in price is less than 1.
This means that the demand is of a commodity is very unreponsive to changes in the price of the commodity. |
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Term
| When is demand considered to be unitary? |
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Definition
Demand is unitary when the quitient of the percent change in quantity demanded divided by the percent change in price is equal to 1.
This means that changes in supply will have proportional effects to the amount demand. |
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Term
Who bears more of the tax burden in markets with elastic demand?
what anout when demand is inelastic?
Unitary? |
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Definition
The party with the more elastic curve bears a smaller part of the burden:
If demand is elastic, the supplier bears more of the tax burden.
If demand is inelastic, the consumer bears more of the burden.
The burden is equal when demand is unitary. |
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Term
| What kind of market would be would be the most effective to impose a tax on producers if you wanted them to internalize externalized costs? |
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Definition
Suppliers would internalize external costs in a market where demand is elastic and supply is absolutely inelastic.
REMEMBER: The party who has more eslasticity on the demand side bears less of the burden. |
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Term
| Who bears more of the tax burden where demand is rather inelastic? |
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Definition
| The consumer bears more of the tax burden where demand is rather inelastic, because the producer would have greater elasticity, thus meaning that the producer would bear less of the burden. |
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