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  • Income and Cross Price Elasticity of Demand

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    Reemaz Suhail
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    Income elasticity of demand measures how much the quantity demanded of a good responds to changes in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. Goods with a positive income elasticity are considered normal goods, where demand increases with more income. Goods with a negative income elasticity are inferior goods, where demand decreases as income rises. Examples are given of income elasticities for both normal and inferior goods and whether they are elastic or inelastic.

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    2. Income and Cross Price Elasticity of Demand

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    Income elasticity of demand measures how much the quantity demanded of a good responds to changes in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. Goods with a positive income elasticity are considered normal goods, where demand increases with more income. Goods with a negative income elasticity are inferior goods, where demand decreases as income rises. Examples are given of income elasticities for both normal and inferior goods and whether they are elastic or inelastic.

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    9 views5 pages

    Income and Cross Price Elasticity of Demand

    Uploaded by

    Reemaz Suhail
    Income elasticity of demand measures how much the quantity demanded of a good responds to changes in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. Goods with a positive income elasticity are considered normal goods, where demand increases with more income. Goods with a negative income elasticity are inferior goods, where demand decreases as income rises. Examples are given of income elasticities for both normal and inferior goods and whether they are elastic or inelastic.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    Income Elasticity and Cross

    Price Elasticity
    Income Elasticity Of Demand

     Income elasticity of demand measures how much


    the quantity demanded of a good responds to a
    change in consumers’ income.

    Qdx = f (Px, Y, P1……. Pn-1, T, A, Ey. Ep, U)


    Income Elasticity of Demand

    • Measures the response of qd to a change in consumer


    income

    Income elasticity Percent change in Qd


    =
    of demand Percent change in income
    Income Elasticity
    - Types Of Goods -
     Normal goods
     Income elasticity is positive.
     Inferior goods
     Income elasticity is negative.

     Higher income raises the quantity demanded for


    normal goods but lowers the quantity demanded for
    inferior goods.
    Elasticity
    • For example:

    • Yed = - 0.6: good is an inferior good but inelastic


    • Yed = + 0.4: good is a normal good but inelastic
    • Yed = + 1.6: good is a normal good and elastic
    • Yed = - 2.1: good is an inferior good and elastic

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