financial capital. That is:

Sometimes laws are proposed that seek to increase the quantity of savings by offering tax breaks so that the

return on savings is higher. Such a policy will have a comparatively large impact on increasing the quantity

saved if the supply curve for financial capital is elastic, because then a given percentage increase in the return

to savings will cause a higher percentage increase in the quantity of savings. However, if the supply curve for

financial capital is highly inelastic, then a percentage increase in the return to savings will cause only a small

increase in the quantity of savings. The evidence on the supply curve of financial capital is controversial but, at

least in the short run, the elasticity of savings with respect to the interest rate appears fairly inelastic.

Expanding the Concept of Elasticity

The elasticity concept does not even need to relate to a typical supply or demand curve at all. For example,
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