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elasticity ((The effects government policies on demand and supply (taxes…

- - - - definition
        
        A price ceiling is a legally established maximum price at which a good can be sold
        
        A price ceiling is binding (effective) only if it is set below the equilibrium price.
        
        Example: Rent control
      - How price ceilings affect market outcomes?
        
        Binding约束 price ceilings create shortages. Some buyers are able to purchase the good at a lower price, but others will miss out altogether.
        
        To manage the shortage some mechanism for rationing 定量配给机制the good will naturally develop.
        
        First come, first served: queuing for goods
        
        Seller discrimination: reserve goods for friends, preferred customers
        
        Government ration: e.g., bureaucratic discretion on priorities; coupons政府配给:例如，在优先事项上的官僚自由裁量权;优惠券
        
        Evading the price control: black market规避价格管制:黑市
    - - definition
        
        A price floor is a legally established minimum price at which a good can be sold
        
        A price floor is binding有约束力 (effective) only if it is set above the equilibrium price.
      - How price floors affect market outcomes
        
        Binding price floors create surpluses.
        
        Some sellers are able to sell their goods at a higher price, but others will not be able to find customers.
        
        Some method for rationing is needed
        
        Example: the minimum wage
        
        The surplus supply of labour is unemployment.
        Rationing workers to employers can lead to discriminatory hiring practices.
    - - definition
        
        Governments levy taxes征税 to fund their operations.
        
        Taxes result in changes in the market equilibrium price and quantity.
        
        Taxes on buyers (e.g. GST) and taxes on sellers (e.g. excise tax) are equivalent.
      - Elasticity and Tax Incidence 纳税归属
        
        Tax incidence is the study of who bears the burden of taxation.
        How the burden of the tax is divided between buyers and seller- (depends on the elasticity of demand and the elasticity of supply)
        
        elastic supply and inelastic demand
        
        the incidence of the tax fail is more heavily on customers than on suppliers
        
        inelastic supply and elastic demand
        
        the incidence负担 of the tax fail is more heavily on suppliers than on customers
      - impact of taxes
        
        In general, taxes discourage any activity that is taxed.
        
        A taxes on buyers or sellers of a good result in
        
        buyers paying a higher price
        
        Sellers receiving a lower price
        
        The quantity of the good sold is smaller.
        
        The tax burden falls more heavily on the side of the market that is less elastic.
    - - definition
        
        A subsidy is a payment from government, to consumers or sellers, for each unit of a good that is bought or sold.
        
        Subsidies paid to buyers and subsidies paid to sellers are equivalent.
      - impact of subsidies
        
        In general, subsidies encourage any activity that is subsidised
        
        A subsidy paid to buyers or sellers of a good result in
        
        buyers paying a lower price
        
        Sellers receiving a higher price
        
        The quantity of the good sold is larger.
        
        subsidies and elasticity of demand and supply
        
        inelastic supply and elastic demand
        
        suppliers benefit more than customers
        
        elastic supply and inelastic demand
        
        customers benefit more than suppliers
    - - Price controls often hurt those they are trying to help.
        
        Rent control may keep rents low, but it also discourages landlords from maintaining their buildings and makes housing hard to find.
        
        Minimum-wage laws may raise the incomes of some workers, but they also cause other workers to be unemployed.
        
        In both cases, the need to ration can result in discrimination.
      - Free markets ration goods with prices
        
        It is efficient and impersonal
  - - - definition
        
        Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers’ income.
        
        Income elasticity is
        
        positive for normal goods and luxury goods
        
        normal goods: 弹性小
        
        luxury goods: 弹性大
        
        negative for inferior goods; e.g., second hand furniture
        
        Income Elasticity of Demand= (Percentage Change in Quantity Demanded)/(Percentage Change in Income)
    - - definition
        
        Measures how the quantity demanded of one good changes as the price of another good changes.
        
        It is
        
        positive for substitutes: pumpkins and butternut
        
        negative for complements: movies and pop corn
        
        Cross Price Elasticity of Demand= (Percentage Change in Quantity Demanded of good 1)/(Percentage Change in price of good 2)={(Q2-Q1)/[(Q2+Q1)÷2]}/{(P2-P1)/[(P2+P1)÷2]}
    - - Price elasticity of supply is the percentage change in quantity supplied resulting from a percent change in price.
      - Elasticity of Supply= (Percentage Change in Quantity Supplied)/(Percentage Change in price)
      - Factors affecting price elasticity of supply
        
        Sellers’ flexibility to change
        
        The supply of beachfront housing vs. the supply of ice-cream
        
        Time period under consideration
        
        In general, supply is more elastic in the long run than in the short run
  - - - meaning
        
        Price elasticity of demand is the percentage change in quantity demanded, resulting from a one per cent change in the price.
      - determinants
        
        Availability of close substitutes
        
        Goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to others;
        
        e.g., Salt vs. Mars bar
        
        Necessity vs. luxuries
        
        Necessities tend to have inelastic demands, whereas goods that are luxuries have elastic demands;
        
        e.g., emergency doctor visits vs. overseas holidays
        
        Definition of the market
        
        Narrowly defined markets tend to have more elastic demand than broadly defined markets; e.g., car vs. transportation.
        
        Time horizon
        
        Goods tend to have more elastic demand over longer time horizons.
        
        E.g., quantity demanded changes less in a week than over a few years
      - calculation
        
        the price elasticity of demand={(Q2-Q1)/[(Q2+Q1)÷2]}/{(P2-P1)/[(P2+P1)÷2]}
    - - If demand is elastic, an increase in the price leads to a decrease in total revenue (P x Q)
        
        because the fall in quantity demanded (Q) is proportionally larger than the rise in price (P)
      - If demand is inelastic, an increase in the price leads to a increase in total revenue (P x Q)
        
        because the fall in quantity demanded (Q) is proportionally smaller than the rise in price (P)
  - - - 1.Examine how the event affects demand and/or supply
        2.Use the supply-and-demand diagram to see how the market equilibrium changes.
    - - In the short run, demand and supply of oil are relatively inelastic.
        
        Oil producers cannot easily increase production, and oil does not have close substitutes
        
        In the long run, demand and supply of oil are relatively elastic.
        
        Oil producers can develop new oil fields, and buyers can switch to more fuel-efficient cars
  - - - In terms of absolute values
        
        E=0, perfectly inelastic
        
        E>1, elastic
        
        E=1, unit elastic
        
        E<1 inelastic
        
        E= ∞, perfectly elastic