Microeconomics › Section E · Elasticity › Topic E.3
Elasticity, pricing, and who bears a tax
Elasticity stops being a formula and starts being a weapon the moment it meets policy: it explains why bumper harvests can bankrupt farmers, why oil prices spike and settle, how airlines sort their passengers - and, most surprisingly, why writing 'sellers pay this tax' on a law changes nothing about who really does.
In this topic
- The puzzles elasticity answers
- The farm paradox
- Can firms pass costs on to consumers?
- Oil: spikes and slow cures
- Sin taxes: revenue and behaviour
- Price discrimination: sorting by elasticity
- Worked example: transit fares and spillovers
- Tax incidence: who really bears a tax
- Worked example: a tax on honey
- Estimating elasticities
- Common mistakes to avoid
- Key takeaways
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