Microeconomics Elastic Demand Is Where the Elasticity Essay

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Microeconomics

Elastic demand is where the elasticity is over 1.0, inelastic is where it is less than 1.0. What this means is that elastic demand sees demand change to a greater degree than the price change, while inelastic demand sees demand change to a lesser degree than the price change.

Substitution is a key factor in the demand curve, because the more likely consumers are to substitute, the more likely demand is going to change strongly with a change in price, because consumers just start buying a different product instead. Demand will be elastic when there is high propensity to substitute, or when the product is an unnecessary item.

Income elasticity helps to determine if a good is normal or inferior, because demand for normal goods increases as income increases, while demand for inferior goods should decrease when income increases because consumers substitute superior products.

If a good is a complement, demand for one will rise while demand for the other rises (say, pork chops and apple sauce). If a good is a substitute, demand for one will rise when the other falls (say, pork chops and steaks).

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5. A consumer surplus is when demand outstrips supply; a producer surplus is when supply outstrips demand.

6. The person who bears the tax is the one for whom the tax reduces income, while the payer is the payer. An example would be the payroll tax -- paid by the employer but coming out of the employee's paycheck. The greater proportion of tax burden depends on proportion of what…proportion of income would be the working poor; proportion of taxes I believe are paid most by corporations.

7. The cost to society of taxation is the deadweight loss that results from the distortions on normal economic behavior that would occur without the tax. When economic behavior changes as the result of tax, the tax paid becomes the deadweight loss. The graph is as follows:

8. The law of diminishing marginal productivity holds that productivity can be reduced through improvements, but that over time the….....

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