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put flow. In bumper sticker form, “Tax bads, not goods!” The bads are depletionand pollution (throughput), and the goods are value added bylabor and capital, that is, earned income. More about that later.Chapter 9 Supply and Demand • 153■ Elasticity of Demand and SupplyHow sensitive is a change in quantity demanded to a change in price?Does it take a big change in price to get even a small change in quantitydemanded? Or does even a tiny change in price cause a big change inquantity demanded? Clearly it could be either, or anywhere in between.Elasticity is a measure of the responsiveness of a change in quantity demandedto a change in price.The numerical measure of elasticity is defined as follows: Price elasticityof demand = percentage change in quantity demanded, divided by thepercentage change in price. Or,ED = (∆q/q) ÷ (∆p/p)An exactly analogous definition holds for the price elasticity of supply.Figure 9.4 shows the extreme values of elasticity of demand and helpsgive you a feel for the concept. In the case on the left, elasticity is infinitebecause even the smallest percentage change in price would cause an infinitepercentage change in quantity demanded. This is the way the demandcurve looks to a pure competitor, a pure price-taker (i.e., one whoseproduction is too small relative to the market supply to have any noticeableeffect on price). In the case on the right, even an infinite percentagechange in price would cause no change in quantity demanded, whichmight approximate the demand for essential goods (e.g., water, food, energy,life-saving medicines, vital ecological fund-services) when in shortsupply. Most demand curves are neither horizontal nor vertical but arenegatively sloped somewhere in between. For these in-between curves,elasticity varies along the curve in most cases. Demand is said to be elasticwhen a 1% change in price gives rise to a more than a 1% change inquantity demanded. If a 1% change in price causes a 1% change in quantity,then the formula gives an elasticity of 1, and consequently this case iscalled unitary elasticity.A classic case of the importance of elasticity is the demand for agriculturalcrops in general. People need to eat no matter how high the price,and they will not eat much more than their fill no matter how low theprice. The demand for food in general is rather inelastic, as shown in Figure9.5. This means that the price (and total revenue) change drasticallywith small changes in quantity, putting the farmer in a risky position. Thisis one reason why governments often subsidize agriculture.Figure 9.5 shows the impact of a shift in supply on the equilibrium