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# Elastisity

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### Elastisity

1. 1. Elasticities<br />Kanako Nakagawa<br />
2. 2. Price Elasticity of Demand<br />Price Elasticity of Demand (PED): a measure of the responsiveness of the quantity demanded of a good or service to a change in its price.<br />PED = (% change in quantity demanded) / (% change in price)<br />Elastic demand: a change in the price of a good or service will cause a proportionately larger change in the quantity demanded.<br />Inelastic demand: a change in the price of a good or service will cause a proportionately smaller change in quantity demanded.<br />
3. 3. Price Elastic Demand<br />Price<br />PED>1<br />P2<br />P1<br />D<br />Q2<br />Q1<br />Quantity<br />
4. 4. Price Inelastic Demand<br />Price<br />P2<br />PED<1<br />P1<br />D<br />Q2<br />Q1<br />Quantity<br />
5. 5. Perfectly Elastic Demand<br />Price<br />PED=infinity<br />P1<br />D<br />Quantity<br />
6. 6. Perfectly Inelastic Demand<br />Price<br />D<br />PED=0<br />Q1<br />Quantity<br />
7. 7. Cross Elasticity of Demand<br />Cross Elasticity of Demand (XED): a measure of the responsiveness of the demand for a good or service to a change in the price of a related good.<br />XED = (% change in quantity demanded for X) / (% change in price of Y)<br />Substitute goods: goods that can be used instead of each other, such as pepsi and coke. They have positive XED<br />Complement goods: goods which are used together, such as oreo and milk. They have negative XED.<br />
8. 8. Income Elasticity of Demand<br />Income Elasticity of Demand (YED) a measure of the responsiveness of demand for a good to change in income.<br />YED = (% change in quantity demanded) / (% change in income)<br />Normal good: has a positive YED. As income rises, demand increases.<br />Inferior good: has a negative YED. As income rises, demand decreases.<br />
9. 9. Price Elasticity of Supply<br />Price Elasticity of Supple (PES): a measure of the responsiveness of the quantity supplied of a good or service to a change in its price.<br />PES = (% change in quantity supplied) / (% change in price)<br />
10. 10. Tax<br />Indirect tax: an expenditure tax on a good or service. An indirect tax is shown on a supply and demand diagram as an upward shift in the supply curve, where the vertical distance between the two supply curves represents the amount of tax.<br />Specific tax: shown as a parallel shift.<br />Ad Valorem tax: shown as a divergent shift.<br />Incidence (burden): incidence of a tax is the amount of tax paid by the producer/consumer. If the demand for a good is inelastic the greater incidence of the tax falls on the consumer. If the demand for a good is elastic, the greater incidence of the tax falls on the producer. <br />