Elasticity, Taxes, and Price Controls

This set of flashcards covers key concepts related to elasticity, taxes, and government intervention in markets.

Price Elasticity of Demand (PED)

The responsiveness of quantity demanded to changes in price.

Law of Demand

The principle that, all else being equal, as the price of a good increases, the quantity demanded decreases, and vice versa.

Price Elastic Demand

When the percentage change in quantity demanded is greater than the percentage change in price.

Perfectly Elastic Demand

A situation where any small price increase results in quantity demanded dropping to zero.

Perfectly Inelastic Demand

A situation where quantity demanded does not change regardless of price changes.

Determinants of PED

Factors that affect price elasticity of demand such as the availability of substitutes and the proportion of income spent on a good.

Income Elasticity of Demand (YED)

The responsiveness of quantity demanded to changes in consumer income.

Normal Good

A good for which demand increases as consumer income rises.

Inferior Good

A good for which demand decreases as consumer income rises.

Indirect Tax

A tax imposed on goods or services, typically paid to the government through the seller.

Price Controls

Government-imposed limits on the prices charged for goods and services, including price ceilings and price floors.

Price Ceiling

A maximum price set by the government to prevent prices from rising too much.

Price Floor

A minimum price set by the government to prevent prices from falling too low.

Subsidies

Financial aid supplied by the government to support businesses and lower consumer prices.

Total Revenue (TR)

The total earnings of a firm from selling its output.