micro-2009-3

micro-2009-3 - Markets Taxes Taxes Quantity tax p 6 S(p.r p...

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Markets Taxes Taxes Quantity tax 6 - @ @ @ @ @ @ @ @ @ @ & & & & & & & & & & & & & & & & & & & & & x p D ( p ) S ( p & t ) S ( p ) x ± p ± ˜ x ˜ p . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r r n t p S = p D & t and ˜ x = D ( p D ) = S ( p S ) Ani Guerdjikova ECON 3130 Fall 2009 29 / 246
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Markets Taxes Taxes Value tax (Sellers pay the tax) 6 - @ @ @ @ @ @ @ @ @ @ & & & & & & & & & & & ± ± ± ± ± ± ± ± ± ± ± ± x p D ( p ) S ( p ( 1 & τ )) S ( p ) x ± p ± ( 1 & τ ) ˜ x ˜ p . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . r r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . p ± p S = p D ( 1 & τ ) and ˜ x = D ( p D ) = S ( p S ) Ani Guerdjikova ECON 3130 Fall 2009 30 / 246
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Markets Taxes Elasticity De&nition The elasticity of a variable measures the percentage change of its value as a result of an increase of the value of another variable by 1 % . Elasticity : = Δ y y Δ x x = Δ y Δ x & x y , where Δ x , respectively Δ y denote the change of x , respectively y . Ani Guerdjikova ECON 3130 Fall 2009 31 / 246
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Markets Taxes Example Elasticity of demand Suppose that the elasticity of demand for gas is & 0 , 3. Then, a 5 % increase of gas price leads to a 1 , 5 % decrease of demand for gas: Δ y y = & 0 , 3 Δ x x = = & 0 , 3 ± 0 , 05 = = & 0 , 015 Ani Guerdjikova ECON 3130 Fall 2009 32 / 246
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Markets Taxes The elasticity of a function f ( x ) = y is given as: Elasticity : = f ( x 0 ) & f ( x ) f ( x ) x 0 & x x = f ( x 0 ) & f ( x ) x 0 & x
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This note was uploaded on 10/10/2009 for the course ECON 3130 at Cornell.

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micro-2009-3 - Markets Taxes Taxes Quantity tax p 6 S(p.r p...

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