Elasticity+of+Supply+AP+MICE


 * __Elasticity of Supply: Tax Incidence__**

•Elasticity is a measure of how much buyers and sellers respond to changes in market conditions, which allows us to analyze supply and demand with greater precision. -More specifically, the **elasticity of supply** measure the responsiveness of quantity supplied to changes in the price of a good.

-To determine mathematically the elasticity of supply can be found by dividing the percentage change in quantity supplied by the percentage change in price. By the law of demand this number is usually positive.

When we see the number that this mathematic equation gives us we can determine how elastic or inelastic the quantity supplied is. In inelastic supply the number is less than one and means that the percentage of quantity supplied does not respond strongly to price changes; in elastic supply the number is greater than one and means that the percentage of quantity supplied responds strongly to changes in price.

•Generally anything can effect a firms ability to change production easily will affect the elasticity of supply. Now the fun part about the elasticity of supply: Tax Incidence.

••**Tax Incidence** is the way that the burden of a tax on a good is distributed amongst the buyer and seller. Normally, tax incidence does not fall on only one group but both buyer and seller in different amounts.

-Here are two examples of the same product, basketballs, on which the taxes on buyers affect market outcomes and on which the taxes on sellers affect the market outcome. If a tax is imposed on the buyer of basketballs then the demand curve will shift down and equilibrium quantity falls, the price sellers receive is reduced, and the price buyers pay rises to a price greater than equilibrium price because tax is include. If a tax is imposed on the seller of basketballs then the supply curve shifts up and equilibrium price increases while equilibrium quantity decreases.

• The amount that sellers receive is reduced because tax takes away some of the money and again the amount the buyer pays is greater than equilibrium price. In both scenarios we notice that the burden in never only put on only buyers or only consumers but shared at different ratios.


 * Things to remember about taxes is that they discourage market activity because when a good is taxed the quantity of the good sold is less than equilibrium.
 * And in this equilibrium, buyers pay more for the good and seller receive less because taxes take out the middle portion.


 * The two main factors of tax incidence are tax rate and elasticity of supply.**

•Here are two examples that will allow you to get the picture on tax incidence on a supply and demand graph. The first example (Graphs A and D) is elastic supply and inelastic demand and it can be seen that when supply is more elastic than demand the tax incidence falls more heavily on buyers than sellers. The second example (Graphs B and C) is inelastic supply and elastic demand and it can be seen that when demand is more elastic tan supply the tax incidence falls more heavily on the sellers than the buyers.



•Another thing to note about taxes incidence is the probable incidences of tax _Personal income tax: levied on the household or individual _Corporate income tax: levied on firms but shifted in whole or part to consumer _Sales tax: consumers who buy taxed products _Specific excise tax: consumer and producers share burden depending on elasticity _Property tax: levied on owners in case of land; tenants in cases of rental; and consumer in case of business property

Information found in Green AP Microeconomics: Demand and Supply: Chapter 3 and 4. Pg. 9-17 Images of graphs: https://static.flatworldknowledge.com/sites/all/files/imagecache/book/28239/fwk-rittenberg-fig15_009.jpg

__**ARTICLE**__

http://finance.yahoo.com/news/Saudi-raises-oil-output-as-rb-71742476.html?x=0&sec=topStories&pos=1&asset=&ccode=

=Saudi raises oil output as Libyan exports disrupted=

The protesting in Libya disturbed their oil exports and that led to a higher oil price in the United States. In order to “make up for” the lack of oil coming from Libya, Saudi Arabia has raised the amount of oil they are supplying by about 8%. They stepped up to the plate because prices in the U.S. were at the highest since 2008. Since oil prices rose to such an extent, the quantity supplied by Saudi Arabia also rose due to the elasticity of supply. However, it is doubtful that Saudi Arabia can completely cover for Libya even though it is the only country that is “able to pump large amounts of extra oil at short notice” because Libya is the world’s 12th largest oil exporter. It is possible that “other oil producers may also see increased demand” because of the protests in Libya. Oil refineries in Europe are “looking to Russia, Iran, and other Caspian countries” to make up for the lack of oil being supplied by Libya. Despite all of this panic over the change in Libya’s supply of oil, the International Energy Agency (IEA) said that, “less than 1 percent of global daily consumption, has been removed ‘at present’ from the market”. In other words, despite the supply crisis people have continued to use gasoline just as much as normal, or nearly so. That fact is what entices oil suppliers to try and step in for Libya, so that they can sell their oil to the U.S. and other countries for much higher prices than normal since people will still be willing to pay for it.

Made by Sam Less, Eric Brasier, and Andrew Coleman