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Elasticity and Taxes definitions

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Terms in this set (15)

  • Tax Incidence
    Distribution of a tax burden between buyers and sellers, determined by the relative elasticity of demand and supply.
  • Price Elasticity of Demand
    A measure showing how much quantity demanded changes in response to a price change, calculated as a percentage ratio.
  • Price Elasticity of Supply
    A measure showing how much quantity supplied changes in response to a price change, calculated as a percentage ratio.
  • Inelastic Demand
    A situation where buyers' quantity demanded changes very little when price changes, often due to necessity or lack of substitutes.
  • Elastic Demand
    A situation where buyers' quantity demanded changes significantly with price changes, often due to many substitutes.
  • Inelastic Supply
    A situation where sellers' quantity supplied changes very little when price changes, often due to production constraints.
  • Elastic Supply
    A situation where sellers' quantity supplied changes significantly with price changes, often due to flexible production.
  • Perfectly Elastic Demand
    A scenario where buyers will only purchase at one price and none at any higher price, resulting in sellers bearing all tax burden.
  • Perfectly Inelastic Demand
    A scenario where buyers will purchase the same amount regardless of price, resulting in buyers bearing all tax burden.
  • Tax Burden
    The share of a tax paid by either buyers or sellers, depending on which side of the market is more inelastic.
  • Supply Curve
    A graphical representation showing the relationship between price and quantity supplied by sellers.
  • Demand Curve
    A graphical representation showing the relationship between price and quantity demanded by buyers.
  • Market Equilibrium
    The point where the quantity supplied equals the quantity demanded, before any tax is imposed.
  • Tax Wedge
    The difference between the price buyers pay and the price sellers receive after a tax is imposed.
  • Necessity Good
    A product with inelastic demand, often essential for consumers, leading to a higher tax burden on buyers.