Price Elasticity

PED= measures the sensitivity of the quantity demanded of a good to change the price,

%change in quantity demanded/ % change in price

Elastic IF |PED| > 1

Unit elastic if |PED| = 1 

Inelastic if |PED| < 1

What determines it - ease at which consumers can change it for another good

price elasicty tends to be higher in the long run

If demand is elastic revenue from new sales in exceed the fall in revenue from existing sales

Own Price elasticity of demand; negative or zero measures sensitivity of consumers to price changes 

Own Price elasticity of supply positive or 0; measures sensitivity of supplier of price changes 

Elasticities to determine how producers and consumers are affected by taxes

Specific tax = particular amount for each good sold

Percentage tax= ad valorem 

Buyer and seller affected by tax unless elasticity = 0 

Incidence of tax = whose affected by it 

Curve that is less elastic bares ore of the burden of tax, supply less=seller 

Demand les=  buyer