MICRO 3

• PED = % change in Q/ P

  
  

  ~ : perfectly elastic

  >1 : elastic

  1 : unit elastic

  <1 : inelastic

  0 : perfectly inelastic
• PES = % change in S/ P

  0 : perfectly inelastic

  0-1 : inelastic

  1 : unit elastic

  1 - ~ : elastic

  ~ : perfectly elastic
• YED = % change in Dd/ I

  >0 : NG/ LG

  >1 : luxuries

  0-1 : necessities

  <0 : IG
• XED = % change in D1/ P2

  >0 substitute

  <0 complement
• Incidence of the tax

  The burden of the tax distributed between consumers and producers

  More inelastic = bear more tax/ pay more
• Tax increase

  SE : work less, spend more

  IE : work more (relatively poorer)

  Overall change depends on the strength of SE and IE

  Subsidy : mkt outcome might be more eff