According to business dictionary, elasticity is a responsive measured in price or quantity. It is also a sensitivity of quantity towards changes of price and it is measured using the elasticity concept with a diagram of demand and supply curve. Why is this important? The importance is to explain the consumer and sellers respective behavior in the market; and also to show the intersection between demand and supply. The general calculation is shown below:
Percentage (%) of change in quantity
Elasticity = Percentage (%) of change in determinant
There are few reasons why elasticity is measured using percentage (%), it’s allows subject measured in different units and also changes in quantity due to change of price in currency value. Problems can be avoided in determining size of unit used. The changes can only be seen if an initial value is provided; for example if the price of the item is RM4 and RM1.20 additional will be significant but if the price is RM48.90 then the RM1.20 is insignificant change. Basically if an initial price is higher and changes are small, then the changes is insignificant, why is this happening? The answer is some consumer can’t really see the different in the price change. There are items that can be elastic and items that can be substitute for example mineral water, chocolate etc. but item that can’t be substitute is petrol, coffee, cigaretteetc.; these are item even the price increase the demand is still the same as everybody that owns a car need petrol, if you are addicted to cigarette, even the price increase you will still buy it.
Elasticity that is normally used is divided to four types which is; price elasticity of demand, price elasticity of supply, income elasticity of demand and cross elasticity of demand. Everyone in supply chain will face taxes increase; for example if a supplier is burden with high tax the possibilities that they will pass the burden to manufacturer or consumer in terms of price increase but most of the time the finished product can’t take up the liability, somebody will have to carry it either manufacturer or retainer or find ways to deal with the tax issue.
2.0 Definition of terms used
For a better understanding, the following terms are defined:
2.1 Introduction to Taxation
What is taxation? Why is it so vital for our country or any other nation? Why is it a very important part of leadership?
According to Cooley (1876) he described taxation as the process or methods that is used to raises income to contribute to the necessary expenses of government. This is also in another way method of devide the cost of improvement made by the governments for it’s people people benefits, this does not apply to all citizen, there are certain way of calculating tax which in our country will be done by the Inland Revenue Board. According to Malcolm (2009) explains that “taxation is the power vested in the legislature to impose burdens or charges upon persons and property...