00:01
So here we're talking about elasticity and the consequences of taxation combining with elasticity.
00:08
And the easiest way to do this is to just show you two graphs, right? quantity and price.
00:15
And let's imagine that we have the same supply curve, but in case one, the demand curve is very flat.
00:21
Quantity and price, we have the same supply curve, but in this case, demand is very sticky.
00:27
So now we're going to slap on a tax.
00:30
A tax ships up the supply curve, giving us a new equilibrium.
00:38
And you can see immediately the difference.
00:41
Here when the demand curve is flat, you get a big reduction in quantity.
00:47
Conversely, when the demand curve is steep, that is inelastic, you get small reduction in quantity.
00:54
And remember that tax revenue, right? revenue, tax revenue is easy.
01:01
To the tax times the quantity.
01:03
So if the quantity is going to fall a lot, tax revenue is going to fall a lot.
01:08
This is why the elasticity of demand is really important.
01:13
So elastic, you get low revenue because the quantity has fallen a lot...