Topic 2: Exchange: elasticities; surplus; welfare
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19 Terms
Price Elasticity of Demand Equation
On a linear demand curve, what does elasticity tend to as qd→0
Negative infinity
On a linear demand curve, what does elasticity tend to as p→0
0
Formal incidence (tax)
Upon the entity which is responsible for remitting the tax, typically the supplier
Effective incidence (tax)
Upon the entity which bears the economic cost
Who is the formal incidence of both specific duties and ad valorem taxes typically on?
The supplier - they have to collect and remit it to the government
Gov Revn, DWL, and Change in CS, PS following tax
WTP
The value of an extra unit acquired
WTA
The value of an extra unit parted with
Satiation point is
When WTP is 0 for further units
Reservation price is (for buyer and seller)
For a buyer, it is the maximum price they are willing to pay before walking away.
For a seller, it is the lowest price they are willing to accept