elasticities - Elasticities SR/LR Sales Taxes Curve Shapes...

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Elasticities, SR/LR, Sales Taxes
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Curve Shapes ) Shapes of the curves (demand, supply) matter for the effects of changes ) Especially needed for quantitative predictions ) In this lecture we are going to see: - A set of key measures of the sensitivity of our curves to the relevant variables - How these measures change over time - Application: How to use these measures to predict tax effects
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Elasticities Demand ) Price elasticity of demand / ± percentage change in quantity demanded percentage change in price ± ± Q / Q p / p ± ± p Q Q p Recall that, if Q ± d " bp , Q p ± " b and hence / ± " p Q b
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) Elasticity can change along the curve: in the linear case elasticity increases as price increases ) Demand curves: elastic, perfectly elastic and inelastic ) Other elasticities: Income elasticity percentage change in quantity demanded percentage change in income ± Y Q Q Y Cross-price elasticity percentage change in quantity demanded percentage change in price of another good ± p 0 Q Q p 0
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Supply ) Price elasticity of supply 1 ±
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