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Un producto con demanda inelástica es la gasolina. A pesar de los cambios en el precio o los impuestos, la mayoría de las personas sigue comprándola porque es necesaria para el transporte y no tiene sustitutos fácilmente accesibles en muchas áreas.

Un producto con demanda elástica sería el entretenimiento digital. Si los precios o los impuestos aumentan, muchos consumidores pueden cancelar sus suscripciones o cambiar a opciones gratuitas o más económicas, ya que hay una amplia variedad de alternativas disponibles.

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When the government adds a tax on candy, people can stop buying it, so they lose, and businesses sell less. But the government gets money from the tax. For milk, even with a tax, people still buy it because they need it, so they pay more. The government makes money in both cases, but people usually lose.

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Example 1: Good with Elastic Demand (Elastic PED)

Product: Fashion clothing.

• Characteristics: The demand for fashion clothing is elastic because consumers can easily substitute it with other alternatives or choose not to buy it at all.

• Impact of the tax:

• Consumers: Since demand is elastic, an increase in price due to the tax will cause many consumers to stop buying the good. This means consumers “lose” because the price increase is significant, but their demand drops.

• Producers: Producers also lose, as the sharp reduction in demand will lead to lower revenues.

• Government: Although the government collects taxes, the decrease in sales means the tax revenue will be lower than expected, compared to goods with less elastic demand.

Example 2: Good with Inelastic Demand (Inelastic PED)

Product: Gasoline.

• Characteristics: Gasoline has inelastic demand because consumers rely on it for daily needs, and there are few substitutes in the short term.

• Impact of the tax:

• Consumers: Even if the price increases due to the tax, consumers will continue to purchase gasoline, although at a higher cost. Here, consumers lose in terms of higher spending, but they cannot reduce their demand much.

• Producers: Producers are less affected because demand doesn’t change significantly, so they can pass the tax burden onto consumers.

• Government: The government benefits more in this case because demand remains stable, ensuring steady tax revenue.

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Elastic PED: a tax on luxury electronics leads to a big drop in demand as consumers are sensitive to price changes.

The government gains some revenue

Producers lose sales, and consumers either pay more or buy less.

Inelastic PED: Atax on cigarettes barely affects demand since consumers areaddicted.

The government collects more revenue, and producers arent greatly impacted.

Consumers pays higher prices

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Elastic PED example:

Luxury-Expensive Cars: If the government imposes a tax on luxury cars, demand will decrease significantly because people can easily avoid buying expensive cars and switch to cheaper alternatives.

Who benefits: The government because it collects more revenue.

Who loses: Consumers, as the price goes up, and producers, as demand falls sharply.

Inelastic PED Example:

Vapes: If the government imposes a tax on vapes, demand won’t decrease much, as consumers are usually addicted and continue to buy them even at higher prices.

Who Benefits: The government (gets tax revenue), and possibly society if fewer people consume this vapes.

Who loses: Consumers (as they pay more) and producers may also see reduced profits but not as a dramatic change.

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ped: Luxury Cars

Tax Imposition: A government imposes a luxury tax of 10% on high-end vehicles priced over $50,000.

Elastic PED: Luxury cars have an elastic demand because consumers can opt for less expensive alternatives or choose not to purchase a car at all.

Impact:

Consumers: They face higher prices for luxury cars, which may lead them to reconsider their purchases or opt for lower-priced models.

Producers: Sales may decline significantly as potential buyers decide against purchasing luxury vehicles, affecting manufacturers and dealerships.

Government - Beneficiaries: Collects additional tax revenue from the luxury tax, which can be used for infrastructure or public services.

Inelastic PED Example: Tobacco Products

Tax Imposition: A government imposes a tax of $2 per pack of cigarettes.

Inelastic PED: Tobacco products generally have inelastic demand because many consumers are dependent on them and have few substitutes.

Consumers - lose: They experience higher costs for cigarettes, but many may continue to purchase them due to addiction, resulting in a lower quantity reduction.

Producers-Beneficiaries: They can often pass the tax onto consumers, maintaining revenue despite a potential slight decrease in sales volume.

Government-Beneficiaries: Gains substantial tax revenue, which can be allocated to public health programs or anti-smoking campaigns.

Elastic Goods (Luxury Cars): Consumers lose due to higher prices, and producers may face lower sales. The government benefits from the luxury tax revenue.

Inelastic Goods (Tobacco Products): Consumers lose due to increased costs, but producers benefit by passing the tax on, and the government benefits from stable tax revenue.

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Example 1: Elastic Demand - Soft Drinks

Tax Imposition: Many countries have implemented taxes on sugary drinks to combat health issues.

Elastic PED: Soft drinks typically have a high elasticity of demand because there are many substitutes (e.g., water, juices, other beverages).

Impact:

Consumers: When the tax increases prices, consumers may significantly reduce their consumption or switch to alternatives. Thus, they bear the burden of higher prices but can adjust their choices.

Producers: Producers may face a drop in sales volume, leading to decreased revenue. Some may also invest in reformulating products to reduce sugar content and avoid the tax.

Government: The government benefits from tax revenue generated from the sale of these beverages, which can be used for health initiatives or public services.

Example 2: Inelastic Demand - Cigarettes

Tax Imposition: Many governments impose heavy taxes on cigarettes.

Inelastic PED: Cigarettes typically have a low elasticity of demand since many consumers are addicted and have few substitutes.

Impact:

Consumers: Although the price increases due to tax, consumers are less likely to significantly reduce their quantity demanded. They face higher costs but will continue purchasing, leading to a smaller adjustment in their consumption habits.

Producers: Producers may maintain or even increase revenue since consumers are less responsive to price changes. However, they may face regulatory challenges and shifts in consumer sentiment over time.

Government: The government benefits significantly from the tax revenue, which is often substantial due to the high demand for cigarettes. This revenue can be allocated to health programs and smoking cessation initiatives.

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Elastic PED: luxury cars can be substituted easy so in price rises, consumers will easily switch to other options. The government probably will not rise that much revenue because sales will drop due to the high elasticity. Producers will absorb the taxes in order to get more consumers and consumer will have to pay higher prices so many of them will stop purchasing them.

Inelastic PED: tax on cigarettes can't be easily replaced and many consumers are addicted. For the government will be highly beneficial to collect big amount of taxes wail the demand doesn't decrease. Consumer will have to pay higher prices because they have no close substitutes and produces will lose a bit if the demand decrease.

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Elastic PED: Luxury Cars

Luxury cars are not necessary products so have an elastic price elasticity of demand. Also, consumers can purchase cars that are less expensive. If the government imposes a tax:

-Consumers may pay higher prices.

-Producers have a loss in demand.

-Government gains from tax revenues, but not to much because the demand drops.

Inelastic PED: Cigarettes

Consumers are addicted to cigarettes so the quantity demanded doesn’t decrease too much, so is inelastic. Governments by this tax imposition affect:

-Consumers generally pay the amount, no matter if the price increases.

-Producers revenue decreases because the taxes, but they may sell the same.

-Governments will benefit a lot because of the high taxes.

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elastic:

Consumer electronics (such as televisions): If the price of a television increases, many consumers might choose to postpone the purchase or look for cheaper alternatives. The demand for this type of product tends to decrease significantly with a price increase.

Taxes increase prices, leading to a significant drop in demand as consumers are price-sensitive, potentially lowering overall tax revenue.

inelastic:

Essential medications (such as insulin): Even if the price goes up, people who need insulin have no choice but to continue buying it, as it is essential for their health. Therefore, demand doesn’t change much in response to price fluctuations.

Taxes raise prices, but demand stays stable since consumers need the product regardless of cost. This generates steady tax revenue but may raise ethical concerns.