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Cross Price Elasticity of Demand: ● Sensitivity of product to a change in price of another produce ● Percent change in Q of product B/ Percent change in P of product A ● Positive= substitute ● Negative= complement Income Elasticity of Demand: ● Sensitivity of product to change in income ● Percent change in income/ percent change in quantity ● Positive= normal good ○ Greater than one= income elastic ○ Less than one= income inelastic ● Negative=inferior good Price Elasticity of Supply ● Measure of the responsiveness of the quantity supplied to the price of a good ● Percent change in QS/ percent change in price ● Determinants ○ Availability of inputs ■ More materials= more elastic ■ Less materials= more inelastic ○ Time ■ Long run= more elastic ■ Short run= more inelastic Basic Laws of Producer and Consumer Surplus: ● If price decreases, consumer surplus increases ○ Willingness to pay is the same, price paid is lower ● If price decreases, producer surplus decreases ○ Cost are the same, prices received is lower ● If price increases, consumer surplus decreases ○ Willingness to pay is the same, price paid is higher ● If price increases, producer surplus increases ○ Costs are the same, price receives is higher ● Price ceiling ○ Consumer surplus is greater than producer surplus ● Price floor ○ Producer surplus is greater than consumer surplus Excise Taxes:

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Per unit tax on producers For every unit sold, producers must pay Goal = make less goods that govt deems dangerous (cigarettes, alcohol)

● Progressive Tax: takes higher percentages of higher incomes than of

lower incomes. (IED>1) ● Regressive Tax: takes higher percentages of lower incomes than of higher incomes (IED...