When the price of one product falls, a person does not need to give up as many units of the second good to buy one more unit of the first. This makes it more appealing to purchase more of the goods whose price has decreased.

When the price of one good rise, one must give up more units of the second good to acquire one more unit of the first good, making consumption of that good less appealing and leading to fewer purchases. The substitution effect is defined as a change in the quantity demanded as a good that has become relatively cheaper is substituted for a good that has become relatively more expensive.

Elasticity is a term used by economists to describe how responsive one variable is to changes in another. Price elasticity of demand, for example, assesses how responsive a quantity wanted is to price changes—something a company considering raising its price would want to know! Any two linked variables can be used to calculate elasticity, which can then be used to calculate responsiveness.

The midpoint method replaces the usual definition of the percent change in a variable, X, with a slightly different definition as associated with the following formula:

• % change in x = change in x/ average value of x times 100

Where the average value of x is defined with the following formula:

• The average value of x = starting value of x + financial value of x /2

If the income elasticity of demand for a good is greater than one, the demand for that good is income-elastic. Demand for income-elastic items rises faster than income when income rises. Second residences and overseas trips, for example, are typically income-elastic. If the income elasticity of demand for a good is positive but less than one, the demand for that good is income-inelastic.

When income rises, so does the demand for income-inelastic goods, though at a slower rate. Food and clothing, for example, are inelastic in terms of income.

Governments have the exclusive right to sell this portion of the radio spectrum to cell phone companies operating within their borders. Governments, on the other hand, are unable to expand or decrease the number of mobile phone frequencies available; the number of frequencies acceptable for cell phone operation is fixed for technological reasons.

The maximum price a consumer is willing to pay for a product is the price at which he or she would purchase that product.

An excise tax creates a gap between the price customers pay and the price producers receive.

Consumers spend more and producers receive less as a result of this wedge. The price elasticity of supply and demand determines whether or not an excise tax is imposed. When demand elasticity is strong and supply elasticity is low, the burden of an excise tax is supported by the weight primarily on producers.

Furthermore, because most sellers must sell their homes owing to job relocation or provide finances for their retirement, supply price elasticity is frequently low. As a result, taxes on house transactions are primarily paid by less well-off sellers, rather than wealthy buyers, as municipal officials believe.