ECON 208 Chapter Notes -Price Ceiling
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ECON 208 Full Course Notes
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When demand is less elastic than supply, the incidence is significantly higher on the demander. When demand is more elastic than supply, the incidence is significantly lower on the demander: the less elastic is demand relative to supply, the greater the incidence of the tax on consumers (and the less on suppliers) Example: the demand for gasoline is inelastic, therefore the tax incidence is on the consumers. Example: because the inelastic demand of alcohol, the government can increase taxes (which become the burden of the demander rather than the supplier) For demand: change in pd t = 1/b 1/b + 1/d (see webct) The bigger the slope of the demand curve relative to the supply curve, the bigger the tax incidence on consumers. (see the study guide) (see extensions in theory 4-1) Income elasticity of demand ny = %change in quantity demanded %change in income. If ny is greater than zero, the good is said to be normal.
