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February 11, 2025 

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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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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.
An elastic demand relation is a very responsive, or stretchable, relation. The elastic demand relation is most often directed toward demand in terms of the price elasticity of demand. In this context, demand is said to be elastic if the percentage change in quantity is larger than the percentage change in price. This means that buyers are responsive to price changes.

An elastic demand relation can fall into one of two categories--perfectly elastic and relatively elastic.

  • Perfectly Elastic: Perfectly elastic means an infinitesimally small change in price results in an infinitely large change in quantity demanded. This elasticity alternative exists when the price is fixed, that is, an infinite range of quantities is associated with the same price. This is the extreme, limiting case of elastic. Perfectly elastic demand can occur, in theory, when buyers have the choice among a large number of perfect substitutes-in-consumption.

  • Relatively Elastic: Relatively elastic means that relatively small changes in price cause relatively large changes in quantity. Quantity is very responsive to price, but not infinitely so. The percentage change in quantity demanded is greater than the percentage change in price. Relatively elastic demand occurs when buyers have the choice among a large number of close but not perfect substitutes-in-consumption.

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ELASTIC DEMAND, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2025. [Accessed: February 11, 2025].


Check Out These Related Terms...

     | elastic supply | elastic | inelastic | inelastic demand | inelastic supply | perfectly elastic | perfectly inelastic | relatively elastic | relatively inelastic | unit elastic | elasticity alternatives | elasticity alternatives, demand | elasticity alternatives, supply |


Or For A Little Background...

     | elasticity | coefficient of elasticity | price elasticity of demand | demand | law of demand | demand curve | price elasticity of supply | substitute-in-consumption |


And For Further Study...

     | elasticity and demand slope | elasticity and supply intercept | demand elasticity and total expenditure | income elasticity of demand | cross elasticity of demand | elasticity determinants |


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