This document defines and provides examples of different types of elasticities including price elasticity of demand, cross elasticity of demand, income elasticity of demand, and price elasticity of supply. It also discusses the concepts of elastic versus inelastic demand curves and how taxes like indirect, specific, and ad valorem taxes are shown on supply and demand diagrams. The document aims to explain how economists measure the responsiveness of quantity demanded and supplied to changes in various factors.

1. Elasticities Kanako Nakagawa

2. Price Elasticity of Demand 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. PED = (% change in quantity demanded) / (% change in price) Elastic demand: a change in the price of a good or service will cause a proportionately larger change in the quantity demanded. Inelastic demand: a change in the price of a good or service will cause a proportionately smaller change in quantity demanded.

3. Price Elastic Demand Price PED>1 P2 P1 D Q2 Q1 Quantity

4. Price Inelastic Demand Price P2 PED<1 P1 D Q2 Q1 Quantity

5. Perfectly Elastic Demand Price PED=infinity P1 D Quantity

6. Perfectly Inelastic Demand Price D PED=0 Q1 Quantity

7. Cross Elasticity of Demand 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. XED = (% change in quantity demanded for X) / (% change in price of Y) Substitute goods: goods that can be used instead of each other, such as pepsi and coke. They have positive XED Complement goods: goods which are used together, such as oreo and milk. They have negative XED.

8. Income Elasticity of Demand Income Elasticity of Demand (YED) a measure of the responsiveness of demand for a good to change in income. YED = (% change in quantity demanded) / (% change in income) Normal good: has a positive YED. As income rises, demand increases. Inferior good: has a negative YED. As income rises, demand decreases.

9. Price Elasticity of Supply 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. PES = (% change in quantity supplied) / (% change in price)

10. Tax 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. Specific tax: shown as a parallel shift. Ad Valorem tax: shown as a divergent shift. 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.