The Best Binary Options Broker 2020!
Perfect For Beginners and Middle-Leveled Traders!
Free Demo Account.
Get Your Sign-Up Bonus Now!
Recommended Only For Experienced Traders!
Choosing a CBD Oil: 10 Favorite Oils to Try
Share on Pinterest Design by Alexis Lira
If you buy something through a link on this page, we may earn a small commission. How this works.
Cannabidiol (CBD) oil is derived from the Cannabis plant. It has many therapeutic benefits and can be used to ease the symptoms of conditions such as anxiety, epilepsy, and cancer.
Many CBD products only contain trace amounts of tetrahydrocannabinol (THC), so they won’t make you feel high. THC is the psychoactive cannabinoid in marijuana.
While there are plenty of CBD oils and tinctures on the market today, it’s important to know that not all of them are created equal. There are currently no over-the-counter (OTC) CBD products approved by the Food and Drug Administration (FDA), and some products may not be as effective or reliable as others.
Keep in mind that everyone responds to CBD differently. So, as you try out products, it’s important to note any positive or negative reactions.
Read on to help narrow your search, and learn about 10 CBD oils and tinctures and their uses. All of the products listed here are:
- full-spectrum, containing less than 0.3 percent THC
- made from U.S.-grown hemp
- third-party tested
- meant to be taken orally
Where available, we’ve included special discount codes for our readers.
CBD oils versus tinctures
CBD oil: made by infusing cannabis in a carrier oil
CBD tincture: made by soaking cannabis in alcohol and water
Charlotte’s Web CBD Oil
|CBD content||210–1,800 mg per 30 mL bottle|
|Test analysis||Available online|
|Ingredients||Lemon twist flavor: hemp extract, fractionated coconut oil, organic lemon verbena oil
Orange blossom flavor: hemp extract, fractionated coconut oil, organic orange flavor
Olive oil flavor: hemp extract, organic extra virgin olive oil
Mint chocolate flavor: hemp extract, fractionated coconut oil, organic mint chocolate flavor oil
|Available flavors||Lemon twist, orange blossom, olive oil, mint chocolate|
|Discounted pricing available?||Discounted pricing for veterans or subscription services. For Healthline readers, use code “HEALTH15” for 15% off.|
This CBD oil may help to relieve stress, support recovery from exercise-induced inflammation, and improve focus. It may also help to calm your nerves and support a healthy night’s sleep.
Veritas Farms Full Spectrum CBD Tincture
|CBD content||250–2,000 mg per 30 mL bottle|
|Test analysis||On product page|
|Ingredients||Unflavored and flavored: hemp extract, organic fractionated coconut oil
Flavored products: organic stevia, essential oils and natural flavors
|Available flavors||Unflavored, watermelon, strawberry, peppermint, citrus|
|Discounted pricing available?||Use code “HEALTHLINE” for 15% off.|
This non-GMO CBD tincture is made from hemp grown in Colorado, using sustainable farming methods to reduce the impact on the land.
The Best Binary Options Broker 2020!
Perfect For Beginners and Middle-Leveled Traders!
Free Demo Account.
Get Your Sign-Up Bonus Now!
Recommended Only For Experienced Traders!
Lazarus Naturals High Potency CBD Tincture
|CBD content||750 mg per 15 mL bottle|
|Test analysis||Link to analysis on product page|
|Ingredients||Unflavored: Organic hempseed oil, fractionated coconut oil, hemp extract
Chocolate mint and French vanilla mocha: Fractionated coconut oil, hemp extract, natural flavors
|Available flavors||Unflavored, chocolate mint, French vanilla mocha|
|Discounted pricing available?||Assistance program for veterans, people with long-term medical disability, or people with low income.|
This CBD tincture is made from hemp grown in Oregon. It may help relieve pain, relax muscles, and reduce inflammation. It’s a cost-effective option that can also be used to boost mood and help manage feelings of anxiety.
Receptra Naturals CBD Tincture
|CBD content||750 mg per 30 mL bottle|
|Test analysis||Available online|
|Ingredients||Organic MCT oil, organic sunflower oil, Receptra hemp extract, organic limonene, organic passion flower extract, organic flavors (lime, ginger, lavender)|
|Available flavors||Ginger lime|
|Discounted pricing available?||Discounted pricing for active and retired military. For Healthline readers, use code “REV15” for 15% off.|
This CBD tincture contains MCT and sunflower oils. With added passionflower extract and limonene, it may help you feel calmer.
Receptra Naturals grows their hemp on family-owned farms in Colorado.
Mana Artisan Botanics Hemp Oil
|CBD content||300 mg per 30 mL bottle|
|Test analysis||Email company for results|
|Ingredients||All flavors: hemp oil, Hawaiian turmeric, organic fair-trade vanilla bean
Coconut flavor: organic coconut oil
Macadamia flavor: organic Hawaiian macadamia nut oil
|Available flavors||Macadamia, coconut|
|Discounted pricing available?||Use code “MANA10” for 10% off.|
This organic CBD oil is infused in either macadamia nut oil or MCT coconut oil and contains turmeric and vanilla.
It may help improve focus and mental clarity and reduce feelings of anxiety and depression. It may also help reduce physical symptoms, such as inflammation, muscle pain, and arthritis.
Based in Hawaii, Mana Artisan Botanics uses a variety of locally sourced, natural Hawaiian ingredients in their products.
4 Corners Cannabis Oral Tincture
|CBD content||250–500 mg per 15 mL bottle|
|Test analysis||On product page|
|Ingredients||Coconut citrus: MCT oil, CBD dominant hemp extract, limonene (orange extract)
Cinnamon: Vegetable glycerin, CBD dominant hemp extract, organic cinnamon extract, organic cane alcohol
Sweet citrus: Vegetable glycerin, CBD dominant hemp extract, limonene (orange extract)
Avocado: Virgin organic avocado oil, CBD dominant hemp extract
|Available flavors||Coconut citrus, cinnamon, sweet citrus, avocado|
|Discounted pricing available?||Use code “SAVE25” for 25% off.|
This organic CBD tincture may induce feelings of calmness and temporarily reduce feelings of anxiety and depression. It may also promote better quality sleep when taken before bedtime.
4 Corners uses certified organic sugar cane ethanol to extract CBD oil from their hemp plants, resulting in an oil that contains more than 60 percent CBD. It can be mixed into your favorite drink or taken on its own.
Zion Medicinals Organic Spagyric Full Spectrum Hemp Oil
|CBD content||250–1,500 mg per 30 mL bottle|
|Test analysis||On product page|
|Ingredients||Hemp, fractionated coconut oil|
|Discounted pricing available?||With subscription service|
This organic CBD oil may help to improve overall health, reduce pain, and calm stress and anxiety.
It’s made using ethanol extraction and spagyric processing. Spagyric processing burns leftover plant matter to create a white ash. The ash is filtered into hemp mineral salts, which are added to the extract. Some believe this process increases the medicinal properties of the hemp.
Zion Medicinals is a Colorado-based company that was created by a couple who sought relief from symptoms of Lyme disease, such as physical pain and insomnia.
Flora Sophia Botanicals Full Spectrum Hemp Extract
|CBD content||800–2,100 mg per 30 mL bottle|
|Test analysis||On product page|
|Ingredients||Organic MCT oil, organic hempseed oil, vitamin E|
|Discounted pricing available?||Wholesale pricing for people with chronic health conditions|
This organic CBD oil may help maintain good health or manage chronic conditions.
Flora Sophia Botanicals uses ethanol to extract the CBD from their Oregon-grown hemp. The base is organic MCT oil and organic hempseed oil.
Eureka Effects Full Spectrum CBD
|CBD content||500 mg per 30 mL bottle|
|Test analysis||On product page|
|Ingredients||Organic hempseed oil, Colorado hemp extract|
|Discounted pricing available?||N/A|
This CBD tincture may promote healing and overall wellness and help to alleviate anxiety, depression, and insomnia. It may also help to treat chronic pain and inflammation.
Eureka Effects oils are produced in Colorado.
Sisters of the Valley CBD Infused Oil
|CBD content||125–225 mg per 15 mL bottle|
|Test analysis||Included with shipment and on product page|
|Ingredients||Coconut oil, hemp, essential oils, blood orange essential oil|
|Discounted pricing available?||N/A|
This CBD oil contains hemp and essential oils and has a coconut oil base. At $25 for a 15-mL bottle, its affordability makes it an ideal option if you’re new to CBD oils.
Sisters of the Valley created this product to help relieve body pain and boost overall health. It’s made with strains of the hemp plant that are developed to be rich in CBD and have almost no THC.
When choosing a CBD product, here are some key questions to ask. Be sure to educate yourself on how to read a product label before you make a purchase.
What type of CBD is in it?
You’ll find three main types of CBD on the market. Isolate contains only CBD, with no other cannabinoids. Full-spectrum contains all cannabinoids naturally found in the cannabis plant, including THC. Broad-spectrum contains multiple cannabinoids naturally found in the cannabis plant, but doesn’t contain THC.
Some research has found that CBD and THC used together produce what’s known as the entourage effect. This means that when used together, they may be more effective than either cannabinoid used alone.
Types of CBD
Isolate: contains only CBD with no other cannabinoids
Full-spectrum: contains all cannabinoids naturally found in the cannabis plant, including THC
Broad-spectrum: contains multiple cannabinoids naturally found in the cannabis plant, but doesn’t contain THC
Full-spectrum CBD also may include these compounds:
- fatty acids
All the products listed above are made from full-spectrum CBD that contains less than 0.3 percent THC. Some of these companies also sell CBD isolate products if you want to avoid THC altogether.
Has it been third-party tested?
CBD products aren’t currently regulated by the FDA, which means that it can be hard to know what you’re actually buying. That’s why it’s important to look for products that are third-party tested, meaning a lab has verified that they contain what the packaging says they do. You should be able to find this information on a company’s website.
Beware of any company that promises extreme results, and remember that results may differ. A product that works well for a friend or family member may not have the same effects for you.
If a product doesn’t work for you, you may consider trying another with different ingredients or a different amount of CBD.
What, if any, other ingredients are in it?
Usually, you’ll find hemp, hemp extract, or hemp oil listed as the main ingredients on a bottle of CBD oil or tincture. These ingredients contain CBD.
Sometimes, other ingredients are added for taste, consistency, and other health benefits. If you’re looking for a product that has a particular flavor, you might want to look for one with added essential oils or flavorings. If you’re looking for possible extra health benefits, you might want to look for one with added vitamins.
Where’s the cannabis grown, and is it organic?
Look for products made from organic, U.S.-grown cannabis. Cannabis grown in the United States is subject to agricultural regulations. Organic ingredients mean you’re less likely to consume pesticides or other chemicals.
Look for CBD products that are third-party tested and made from organic, U.S.-grown cannabis. Depending on your needs, you may want to look for full- or broad-spectrum products. Always check the ingredients to see that they suit your needs.
CBD oil isn’t the same as hempseed oil, which is sometimes labeled as hemp oil.
CBD oil is made from the flower, bud, stems, and leaves of the Cannabis plant. Hempseed oil is made from the hemp seeds, and doesn’t contain any CBD.
Hempseed oil can be used topically for skin health, and it can be taken orally as a supplement or food additive.
CBD oil may be taken orally, or it can be added to balms and moisturizers and applied topically.
Shake the bottle before use to ensure the ideal consistency. Use a dropper — many products will come with one — to place the oil under your tongue. For maximum absorption, hold it under your tongue for 30 seconds to a few minutes before swallowing.
To determine how many drops to take, follow the recommended dose from the manufacturer or your doctor. Start with a small dose. Over time, you can increase the dose and frequency until you achieve your desired results.
Appropriate serving sizes for CBD vary greatly depending on individual factors, such as intended use, body weight, metabolism, and body chemistry.
Doses should be taken at least 4 to 6 hours apart. You can take CBD at any time of day. If you’re using it to improve sleep, take it before bed.
The immediate effects of CBD usually take effect within 30 to 90 minutes, but long-term results may take several weeks to achieve.
You can also mix CBD oil into drinks and food, but this may affect absorption.
Store CBD oils and tinctures in a dry, cool place away from direct heat and sunlight. Make sure the cap is closed tightly after each use. It isn’t necessary to refrigerate the product, but it may help to prolong shelf life.
Avoid touching your mouth with the dropper to prevent bacterial contamination and preserve the quality of the oil.
CBD is also available in capsules or gummies, or infused into skin care products, such as lotions and salves. CBD skin care products can be absorbed into the skin and don’t need to be washed off.
CBD is generally well-tolerated and safe to use, though adverse reactions such as fatigue and digestive issues are possible.
Talk to your doctor before taking CBD if you’re pregnant or breastfeeding, have any medical conditions, or take any OTC or prescription medications or supplements. CBD has the potential to interact with medications, including those that also interact with grapefruit.
Carefully read the ingredient list if you’re allergic to coconut oil or have any other possible allergies.
CBD is legal in many parts of the United States, but most manufacturers require you to be at least 18 years of age to purchase their product. It may not be legal in all countries.
Check your local laws before buying CBD. When buying online, confirm with the manufacturer that they’ll ship to your area, but also check local laws.
Since CBD products can contain trace amounts of THC, it’s still possible for it to show up on a marijuana drug test. Avoid taking CBD products if this is a concern.
Researchers don’t yet know all of the benefits or risks of CBD use. Results may be slow and subtle, and they may vary among people. You may wish to track your results using a journal so you can see the effects over time.
Want to learn more about CBD? Click here for more product reviews, recipes, and research-based articles about CBD from Healthline.
Is CBD Legal? Hemp-derived CBD products (with less than 0.3 percent THC) are legal on the federal level, but are still illegal under some state laws. Marijuana-derived CBD products are illegal on the federal level, but are legal under some state laws. Check your state’s laws and those of anywhere you travel. Keep in mind that nonprescription CBD products are not FDA-approved, and may be inaccurately labeled.
Why Your Last Flight Was So Expensive
Few expenses boil the blood of business travelers like airfares. Airlines are known to make their livings on the backs of road warriors, whose schedules are relatively inflexible and whose travel decisions are often last minute. And these days, not only are there few empty middle seats to mitigate the armrest wars, but airfares appear to be on the rise.
“Prices are flat to slightly above inflation. That’s the good news,” said Rick Seaney, chief executive officer of FareCompare, an airfare travel planning web site. “But 2020 [the last year for which annual statistics are available] was the highest in a decade so that’s the bad news.”
Several factors play a role in escalating prices, led by the price of oil, currently more than $100 per barrel. Capacity control has also inflated fares. “If you reduce supply relative to constant demand, then you can push up average fares because then you are not carrying the most price-sensitive traveler,” said Seth Kaplan, managing partner of Airline Weekly, a publication that covers the industry. “That’s what airlines have basically done. It’s a larger industry but there are not more domestic seats in the air.”
Finally, industry consolidation is poised to boost prices. With the mergers of Delta and Northwest, United and Continental, Southwest and AirTran and, more recently, American and US Airways, the big four control more than 70 percent of the domestic market. Patrick Surry, chief data scientist at Hopper.com, a trip planning engine and data analysis company that publishes a detailed global flight map displaying average fares, says those numbers aren’t in yet, but anecdotally fares are inching up except on competitive routes, such as transcontinental flights. “You can see if you start in Boston, it’s cheap to get to the west coast, but more expensive to get to places in the middle of the country,” he said. “It’s down to the fact that there’s more competition and demand for those routes.”
Fees for things like fuel surcharges, which don’t necessarily rise and fall with actual oil prices, also push up fares. This year, the so-called 9/11 fee that funds airport security will more than double from $5 for a round-trip ticket to $11.20. And the general nickel-and-diming continues. In February, United charged me $6 for a glass of wine en route to Tokyo, a price that went up $1 by the time I returned a week later.
Travelers can better control the optional extras. The big ticket, of course, is a bigger problem. These few rules of thumb will help you save:
1. Travel hungry. “The cheapest times of day to travel are 6am, noon and 6pm — mealtimes,” said Seaney. BYO food on board.
2. Fly on the slowest days of air travel: Tuesdays, Wednesdays and Saturdays.
3. Think ahead, but not too far. “The biggest mistake people make is they don’t shop early enough,” said Seaney, meaning at least 30 days out. Airlines start managing seats by tinkering with fares three months prior to departure, with few bargains before then.
4. Buy early in the week. “Airlines reset pricing on Tuesdays and Wednesdays and that’s the time you may find a bargain that only exists for a few days,” said Surry.
5. Consider a secondary airport in a major market. The savings tradeoff: you’ll spend more time commuting.
The bottom line is most spur-of-the-moment business travel will cost dearly. In which case, Kaplan of Airline Weekly suggests looking on the bright side. “We now have a more reliable and safer product,” he said, noting it’s been more than 12 years since we’ve had a major carrier crash in the United States. “But we’re paying for it. We’re not getting free meals, but we’re getting reliability, safety and punctuality.”
Does Raising Price Bring in More Revenue?
Imagine that a band on tour is playing in an indoor arena with 15,000 seats. To keep this example simple, assume that the band keeps all the money from ticket sales. Assume further that the band pays the costs for its appearance, but that these costs, like travel, setting up the stage, and so on, are the same regardless of how many people are in the audience. Finally, assume that all the tickets have the same price. (The same insights apply if ticket prices are more expensive for some seats than for others, but the calculations become more complicated.) The band knows that it faces a downward-sloping demand curve; that is, if the band raises the price of tickets, it will sell fewer tickets. How should the band set the price for tickets to bring in the most total revenue, which in this example, because costs are fixed, will also mean the highest profits for the band? Should the band sell more tickets at a lower price or fewer tickets at a higher price?
The key concept in thinking about collecting the most revenue is the price elasticity of demand. Total revenue is price times the quantity of tickets sold. Imagine that the band starts off thinking about a certain price, which will result in the sale of a certain quantity of tickets. The three possibilities are laid out in Table 5. If demand is elastic at that price level, then the band should cut the price, because the percentage drop in price will result in an even larger percentage increase in the quantity sold—thus raising total revenue. However, if demand is inelastic at that original quantity level, then the band should raise the price of tickets, because a certain percentage increase in price will result in a smaller percentage decrease in the quantity sold—and total revenue will rise. If demand has a unitary elasticity at that quantity, then a moderate percentage change in the price will be offset by an equal percentage change in quantity—so the band will earn the same revenue whether it (moderately) increases or decreases the price of tickets.
|If Demand Is . . .||Then . . .||Therefore . . .|
|Elastic||% change in Qd > % change in P||A given % rise in P will be more than offset by a larger % fall in Q so that total revenue (P × Q) falls.|
|Unitary||% change in Qd = % change in P||A given % rise in P will be exactly offset by an equal % fall in Q so that total revenue (P × Q) is unchanged.|
|Inelastic||% change in Qd
Can Costs Be Passed on to Consumers?
Most businesses face a day-to-day struggle to figure out ways to produce at a lower cost, as one pathway to their goal of earning higher profits. However, in some cases, the price of a key input over which the firm has no control may rise. For example, many chemical companies use petroleum as a key input, but they have no control over the world market price for crude oil. Coffee shops use coffee as a key input, but they have no control over the world market price of coffee. If the cost of a key input rises, can the firm pass those higher costs along to consumers in the form of higher prices? Conversely, if new and less expensive ways of producing are invented, can the firm keep the benefits in the form of higher profits, or will the market pressure them to pass the gains along to consumers in the form of lower prices? The price elasticity of demand plays a key role in answering these questions.
Imagine that as a consumer of legal pharmaceutical products, you read a newspaper story that a technological breakthrough in the production of aspirin has occurred, so that every aspirin factory can now make aspirin more cheaply than it did before. What does this discovery mean to you? Figure 1 illustrates two possibilities. In Figure 1 (a), the demand curve is drawn as highly inelastic. In this case, a technological breakthrough that shifts supply to the right, from S0 to S1, so that the equilibrium shifts from E0 to E1, creates a substantially lower price for the product with relatively little impact on the quantity sold. In Figure 1 (b), the demand curve is drawn as highly elastic. In this case, the technological breakthrough leads to a much greater quantity being sold in the market at very close to the original price. Consumers benefit more, in general, when the demand curve is more inelastic because the shift in the supply results in a much lower price for consumers.
Figure 1. Passing along Cost Savings to Consumers. Cost-saving gains cause supply to shift out to the right from S0 to S1; that is, at any given price, firms will be willing to supply a greater quantity. If demand is inelastic, as in (a), the result of this cost-saving technological improvement will be substantially lower prices. If demand is elastic, as in (b), the result will be only slightly lower prices. Consumers benefit in either case, from a greater quantity at a lower price, but the benefit is greater when demand is inelastic, as in (a).
Producers of aspirin may find themselves in a nasty bind here. The situation shown in Figure 1, with extremely inelastic demand, means that a new invention may cause the price to drop dramatically while quantity changes little. As a result, the new production technology can lead to a drop in the revenue that firms earn from sales of aspirin. However, if strong competition exists between producers of aspirin, each producer may have little choice but to search for and implement any breakthrough that allows it to reduce production costs. After all, if one firm decides not to implement such a cost-saving technology, it can be driven out of business by other firms that do.
Since demand for food is generally inelastic, farmers may often face the situation in Figure 1 (a). That is, a surge in production leads to a severe drop in price that can actually decrease the total revenue received by farmers. Conversely, poor weather or other conditions that cause a terrible year for farm production can sharply raise prices so that the total revenue received increases. The Clear It Up box discusses how these issues relate to coffee.
How do coffee prices fluctuate?
Coffee is an international crop. The top five coffee-exporting nations are Brazil, Vietnam, Colombia, Indonesia, and Ethiopia. In these nations and others, 20 million families depend on selling coffee beans as their main source of income. These families are exposed to enormous risk, because the world price of coffee bounces up and down. For example, in 1993, the world price of coffee was about 50 cents per pound; in 1995 it was four times as high, at $2 per pound. By 1997 it had fallen by half to $1.00 per pound. In 1998 it leaped back up to $2 per pound. By 2001 it had fallen back to 46 cents a pound; by early 2020 it went back up to about $2.31 per pound. By the end of 2020, the price had fallen back to about $1.31 per pound.
The reason for these price bounces lies in a combination of inelastic demand and shifts in supply. The elasticity of coffee demand is only about 0.3; that is, a 10% rise in the price of coffee leads to a decline of about 3% in the quantity of coffee consumed. When a major frost hit the Brazilian coffee crop in 1994, coffee supply shifted to the left with an inelastic demand curve, leading to much higher prices. Conversely, when Vietnam entered the world coffee market as a major producer in the late 1990s, the supply curve shifted out to the right. With a highly inelastic demand curve, coffee prices fell dramatically. This situation is shown in Figure 1 (a).
Elasticity also reveals whether firms can pass higher costs that they incur on to consumers. Addictive substances tend to fall into this category. For example, the demand for cigarettes is relatively inelastic among regular smokers who are somewhat addicted; economic research suggests that increasing the price of cigarettes by 10% leads to about a 3% reduction in the quantity of cigarettes smoked by adults, so the elasticity of demand for cigarettes is 0.3. If society increases taxes on companies that make cigarettes, the result will be, as in Figure 2 (a), that the supply curve shifts from S0 to S1. However, as the equilibrium moves from E0 to E1, these taxes are mainly passed along to consumers in the form of higher prices. These higher taxes on cigarettes will raise tax revenue for the government, but they will not much affect the quantity of smoking.
If the goal is to reduce the quantity of cigarettes demanded, it must be achieved by shifting this inelastic demand back to the left, perhaps with public programs to discourage the use of cigarettes or to help people to quit. For example, anti-smoking advertising campaigns have shown some ability to reduce smoking. However, if demand for cigarettes was more elastic, as in Figure 2 (b), then an increase in taxes that shifts supply from S0 to S1 and equilibrium from E0 to E1 would reduce the quantity of cigarettes smoked substantially. Youth smoking seems to be more elastic than adult smoking—that is, the quantity of youth smoking will fall by a greater percentage than the quantity of adult smoking in response to a given percentage increase in price.
Figure 2. Passing along Higher Costs to Consumers. Higher costs, like a higher tax on cigarette companies for the example given in the text, lead supply to shift to the left. This shift is identical in (a) and (b). However, in (a), where demand is inelastic, the cost increase can largely be passed along to consumers in the form of higher prices, without much of a decline in equilibrium quantity. In (b), demand is elastic, so the shift in supply results primarily in a lower equilibrium quantity. Consumers suffer in either case, but in (a), they suffer from paying a higher price for the same quantity, while in (b), they suffer from buying a lower quantity (and presumably needing to shift their consumption elsewhere).
Elasticity and Tax Incidence
The example of cigarette taxes showed that because demand is inelastic, taxes are not effective at reducing the equilibrium quantity of smoking, and they are mainly passed along to consumers in the form of higher prices. The analysis, or manner, of how the burden of a tax is divided between consumers and producers is called tax incidence. Typically, the incidence, or burden, of a tax falls both on the consumers and producers of the taxed good. But if one wants to predict which group will bear most of the burden, all one needs to do is examine the elasticity of demand and supply. In the tobacco example, the tax burden falls on the most inelastic side of the market.
If demand is more inelastic than supply, consumers bear most of the tax burden, and if supply is more inelastic than demand, sellers bear most of the tax burden.
The intuition for this is simple. When the demand is inelastic, consumers are not very responsive to price changes, and the quantity demanded remains relatively constant when the tax is introduced. In the case of smoking, the demand is inelastic because consumers are addicted to the product. The government can then pass the tax burden along to consumers in the form of higher prices, without much of a decline in the equilibrium quantity.
Similarly, when a tax is introduced in a market with an inelastic supply, such as, for example, beachfront hotels, and sellers have no alternative than to accept lower prices for their business, taxes do not greatly affect the equilibrium quantity. The tax burden is now passed on to the sellers. If the supply was elastic and sellers had the possibility of reorganizing their businesses to avoid supplying the taxed good, the tax burden on the sellers would be much smaller. The tax would result in a much lower quantity sold instead of lower prices received. Figure 3 illustrates this relationship between the tax incidence and elasticity of demand and supply.
Figure 3. Elasticity and Tax Incidence. An excise tax introduces a wedge between the price paid by consumers (Pc) and the price received by producers (Pp). (a) When the demand is more elastic than supply, the tax incidence on consumers Pc – Pe is lower than the tax incidence on producers Pe – Pp. (b) When the supply is more elastic than demand, the tax incidence on consumers Pc – Pe is larger than the tax incidence on producers Pe – Pp. The more elastic the demand and supply curves are, the lower the tax revenue.
In Figure 3 (a), the supply is inelastic and the demand is elastic, such as in the example of beachfront hotels. While consumers may have other vacation choices, sellers can’t easily move their businesses. By introducing a tax, the government essentially creates a wedge between the price paid by consumers Pc and the price received by producers Pp. In other words, of the total price paid by consumers, part is retained by the sellers and part is paid to the government in the form of a tax. The distance between Pc and Pp is the tax rate. The new market price is Pc, but sellers receive only Pp per unit sold, as they pay Pc-Pp to the government. Since a tax can be viewed as raising the costs of production, this could also be represented by a leftward shift of the supply curve, where the new supply curve would intercept the demand at the new quantity Qt. For simplicity, Figure 3 omits the shift in the supply curve.
The tax revenue is given by the shaded area, which is obtained by multiplying the tax per unit by the total quantity sold Qt. The tax incidence on the consumers is given by the difference between the price paid Pc and the initial equilibrium price Pe. The tax incidence on the sellers is given by the difference between the initial equilibrium price Pe and the price they receive after the tax is introduced Pp. In Figure 3 (a), the tax burden falls disproportionately on the sellers, and a larger proportion of the tax revenue (the shaded area) is due to the resulting lower price received by the sellers than by the resulting higher prices paid by the buyers. The example of the tobacco excise tax could be described by Figure 3 (b) where the supply is more elastic than demand. The tax incidence now falls disproportionately on consumers, as shown by the large difference between the price they pay, Pc, and the initial equilibrium price, Pe. Sellers receive a lower price than before the tax, but this difference is much smaller than the change in consumers’ price. From this analysis one can also predict whether a tax is likely to create a large revenue or not. The more elastic the demand curve, the easier it is for consumers to reduce quantity instead of paying higher prices. The more elastic the supply curve, the easier it is for sellers to reduce the quantity sold, instead of taking lower prices. In a market where both the demand and supply are very elastic, the imposition of an excise tax generates low revenue.
Excise taxes tend to be thought to hurt mainly the specific industries they target. For example, the medical device excise tax, in effect since 2020, has been controversial for it can delay industry profitability and therefore hamper start-ups and medical innovation. But ultimately, whether the tax burden falls mostly on the medical device industry or on the patients depends simply on the elasticity of demand and supply.
Long-Run vs. Short-Run Impact
Elasticities are often lower in the short run than in the long run. On the demand side of the market, it can sometimes be difficult to change Qd in the short run, but easier in the long run. Consumption of energy is a clear example. In the short run, it is not easy for a person to make substantial changes in the energy consumption. Maybe you can carpool to work sometimes or adjust your home thermostat by a few degrees if the cost of energy rises, but that is about all. However, in the long-run you can purchase a car that gets more miles to the gallon, choose a job that is closer to where you live, buy more energy-efficient home appliances, or install more insulation in your home. As a result, the elasticity of demand for energy is somewhat inelastic in the short run, but much more elastic in the long run.
Figure 4 is an example, based roughly on historical experience, for the responsiveness of Qd to price changes. In 1973, the price of crude oil was $12 per barrel and total consumption in the U.S. economy was 17 million barrels per day. That year, the nations who were members of the Organization of Petroleum Exporting Countries (OPEC) cut off oil exports to the United States for six months because the Arab members of OPEC disagreed with the U.S. support for Israel. OPEC did not bring exports back to their earlier levels until 1975—a policy that can be interpreted as a shift of the supply curve to the left in the U.S. petroleum market. Figure 4 (a) and Figure 4 (b) show the same original equilibrium point and the same identical shift of a supply curve to the left from S0 to S1.
Figure 4 (a) shows inelastic demand for oil in the short run similar to that which existed for the United States in 1973. In Figure 4 (a), the new equilibrium (E1) occurs at a price of $25 per barrel, roughly double the price before the OPEC shock, and an equilibrium quantity of 16 million barrels per day. Figure 4 (b) shows what the outcome would have been if the U.S. demand for oil had been more elastic, a result more likely over the long term. This alternative equilibrium (E1) would have resulted in a smaller price increase to $14 per barrel and larger reduction in equilibrium quantity to 13 million barrels per day. In 1983, for example, U.S. petroleum consumption was 15.3 million barrels a day, which was lower than in 1973 or 1975. U.S. petroleum consumption was down even though the U.S. economy was about one-fourth larger in 1983 than it had been in 1973. The primary reason for the lower quantity was that higher energy prices spurred conservation efforts, and after a decade of home insulation, more fuel-efficient cars, more efficient appliances and machinery, and other fuel-conserving choices, the demand curve for energy had become more elastic.
On the supply side of markets, producers of goods and services typically find it easier to expand production in the long term of several years rather than in the short run of a few months. After all, in the short run it can be costly or difficult to build a new factory, hire many new workers, or open new stores. But over a few years, all of these are possible.
Indeed, in most markets for goods and services, prices bounce up and down more than quantities in the short run, but quantities often move more than prices in the long run. The underlying reason for this pattern is that supply and demand are often inelastic in the short run, so that shifts in either demand or supply can cause a relatively greater change in prices. But since supply and demand are more elastic in the long run, the long-run movements in prices are more muted, while quantity adjusts more easily in the long run.
Key Concepts and Summary
In the market for goods and services, quantity supplied and quantity demanded are often relatively slow to react to changes in price in the short run, but react more substantially in the long run. As a result, demand and supply often (but not always) tend to be relatively inelastic in the short run and relatively elastic in the long run. The tax incidence depends on the relative price elasticity of supply and demand. When supply is more elastic than demand, buyers bear most of the tax burden, and when demand is more elastic than supply, producers bear most of the cost of the tax. Tax revenue is larger the more inelastic the demand and supply are.
Critical Thinking Questions
Assume that the supply of low-skilled workers is fairly elastic, but the employers’ demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? What if the policy goal is to raise wages for this group? Explain your answers with supply and demand diagrams.
Answers to Self-Check Questions
Principles of Economics by Rice University is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.
Text A. Travelling by low-cost carriers
In the good old days it was easy. Most countries had a national airline: KLM was the Dutch one, LOT –the Polish national airline, and so on. The exception to this was the US, where different major airlines such as Pan Am, American Airlines, or Delta, competed only for clients. Most of these airlines offered similar products at more or less the same prices. Of course, some companies concentrated more on short-haul, domestic flights – the sort of flight where you are only just in the air when the cabin crew are telling you to get ready for landing. Others like Qantas became famous for their long-haul, intercontinental routes, offering free stopovers to make eighteen-hour flights more attractive to customers.
The air ticket itself was, and still is, a complex business. The basic return ticket was the most common: the single ticket was so expensive that nobody ever bought one except in an emergency. And of course, the traditional ticket came in different classes to suit different pockets: economy for the masses, business for the executives, and first class for those lucky few who could pay ten times the economy tariff to get more legroom and a seat that converts into a bed!
The whole system was turned upside down, however, by the arrival of the low-cost carriers. Ryanair got no-frills flying going in the early 90s, modeling itself on the American budget airline, Southwest Airlines, easyJet was quick to follow, and since then the idea of getting on a plane the same way you would get on a coach has really taken off, with Germanwings, Smart Wings, BMI Baby, Vueling, and a hundred others. The rest is history, with traditional airlines going deeper and deeper in the first two decades of this millennium.
The low-cost strategy is based on limited turnaround times at airports – usually twenty to twenty-five minutes. This means that the airlines can get more flights out of a day – eight as opposed to the normal six. Some low-cost carriers also use secondary airports, with much lower landing and take-over charges. Paperless ticketing and sales over the Internet also keep costs down. They also issue single tickets only, and of course, there are no first-class or business-class seats. No free newspapers nor free food. In fact, no free anything, although you can pay to buy most things during the flight.
And the future? Paperless ticketing and Internet sales from traditional airlines? That’s already here. Low-cost flights to long-haul destinations? That’s less likely to happen, precisely because of the way low-cost carriers make their money by fitting so many flights into each day. But who knows? The sky’s the limit!
I. Read the following international words and guess their meaning. Consult the dictionary:
national, airline, major, client, product, concentrate, company, sort, cabin, intercontinental, traditional, basic, class, economy, business, tariff, convert, system, model, budget, idea, history, decade, strategy, airport, minute, normal, Internet, limit.
II. Look through text A and find the English equivalents to the Russian word combinations:
основные авиакомпании; по схожей цене; перелеты на близкие расстояния; внутренние рейсы; экипаж самолета; приготовиться к посадке; перелеты на дальние расстояния; бесплатная пересадка; привлекательный для клиентов; билет на самолет; большее расстояние между рядами сидений; бюджетная авиакомпания; перелет по сниженному тарифу; ограниченное время, проведенное в аэропорту; предоставление электронных билетов; бесплатные газеты и еда.
III. Read the text ‘Travelling by low-cost carriers’. Complete the sentences with words from the text.
1. A less technical name for a low-cost carrier is … . 2. A … allows you to interrupt a long flight and stay in a city en route to your destination. 3. A …-… flight is one that does not go further than 10,000 km. 4. …-… are airlines that offer low tariffs for basic services with no ‘extras’ such as meals on the plane. 5. Giving the customer a reference number for a seat on a plane but not a ticket they can hold in their hand is known as … … . 6. The fees an airline pays to an airport for using its facilities are known as … and …-… 7. The … is the minimum time between a plane landing and taking off.
IV. According to the text, which of the following statements are
a) only true for major airlines?
b) only true for low-cost carriers?
c) true for both types of airlines?
d) true for neither type?
1.They do not have different classes of seating on board their planes.
2. They offer free in-flight food and entertainment.
3. They offer free stopovers on long-haul flights.
4. They often use less important airports.
5. They only sell single tickets.
6. They operate long-haul flights.
7. They operate short and medium-haul flights.
8. They spend as little time on the ground as possible.
9. They use paperless ticketing.
10. They provide little legroom for passengers.
V. Fill in the blanks with proper prepositions.
1. The exception … this were only a few companies.
2. They competed openly … clients.
3. They offered products … similar prices.
4. The cabin crew will tell you to get ready … landing.
5. Others became famous … their long-haul flights.
6. That made long flights more attractive … customers.
7. The system was changed … arrival of the low-cost carriers.
8. Their strategy is based … limited turnaround times at airports.
9. Sales … the Internet keep costs down.
10. That’s unlikely to happen because … the way low-cost carriers make their money.
VI. Make a list of the reasons for the current success of low-cost airlines. Have you ever used their service? Would you travel by a low-coster or a major airline to Europe? To the USA?
Поперечные профили набережных и береговой полосы: На городских территориях берегоукрепление проектируют с учетом технических и экономических требований, но особое значение придают эстетическим.
Опора деревянной одностоечной и способы укрепление угловых опор: Опоры ВЛ – конструкции, предназначенные для поддерживания проводов на необходимой высоте над землей, водой.
Общие условия выбора системы дренажа: Система дренажа выбирается в зависимости от характера защищаемого.
Организация стока поверхностных вод: Наибольшее количество влаги на земном шаре испаряется с поверхности морей и океанов (88‰).
Best Binary Options Brokers 2020: