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ABILITY-TO-PAY PRINCIPLE: A principle of taxation in which taxes are based on the income or resource-ownership ability of people to pay the tax. The income tax collected by our friends at the Internal Revenue Service is one of the most common taxes that seeks to abide by the ability-to-pay principle. In theory, the income tax system is set up such that people with greater incomes pay more taxes. Proportional and progressive taxes follow this ability-to-pay principle, while regressive taxes, such as sales taxes and Social Security taxes, don't.

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Lesson 3: Scarcity | Unit 3: Opportunity Cost Page: 9 of 17

Topic: The Concept <=PAGE BACK | PAGE NEXT=>

With limited resources and unlimited wants and needs, a lot of opportunities are forgone, a lot of alternatives can't be pursued. This is the idea of opportunity cost.

A definition:

  • Opportunity cost is the highest valued alternative foregone in the pursuit of an activity.
Three points related to this definition:
  • Foregone Alternative: Opportunity cost means NOT doing something else, not producing another good. Using resources to satisfy one want or need means they can't be used to satisfy another.
  • Highest Valued: Opportunity cost is all about giving up the best alternative possible, the most satisfying. Any activity has many alternatives. Opportunity cost is not all of these alternatives, only the most preferred, the highest valued.
  • Pursuit of an Activity: Using resources to produce goods that are consumed to satisfy wants and needs. The key economic activities foregone are production and consumption.

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ELASTIC DEMAND

The general demand relation in which relatively small changes in price cause relatively large changes in quantity demanded. Small changes in price cause relatively large changes in quantity demanded or the percentage change in quantity demanded is larger than the percentage change in price. This characterization of elasticity is most important for the price elasticity of demand. Elastic demand is one of two general elasticity relations for demand. The other is inelastic demand.

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PINK FADFLY
[What's This?]

Today, you are likely to spend a great deal of time at a crowded estate auction trying to buy either a remote controlled ceiling fan or a how-to book on home decorating. Be on the lookout for celebrities who speak directly to you through your television.
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More money is spent on gardening than on any other hobby.
"Do what you feel in your heart to be right for you'll be criticized anyway. You'll be damned if you do and damned if you don't. "

-- Eleanor Roosevelt, first lady

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