Income Elasticity and Cross Price Elasticity of demand

 

Income Elasticity of demand:

 

 

If the quantity demand of a commodity varies due to the variation in the income of an individual, then this will be known as income elasticity of demand. In such conditions we have two most common scenarios that are as follows:

 

Normal Product: If suppose income rises and the demand of a product also increases, than such kind of products are known as normal products. For such kind of products .

 

Inferior Product: If suppose income rises and the demand of a product decreases, than such kind of products are known as inferior products. For such kind of products .

 

Related Post

 

Cross Price Elasticity of demand:

 

Cross price elasticity explains the effect of a price of one product to the quantity demand of the other product. It basically tells that either one product is a substitute or a complement product to the other.

 

 

When Cross price elasticity of demand is a positive value, than this means that the two product are substitute of each other. On the other hand if Cross price elasticity of demand is a negative value than this means that the two products are complement of each other.

 

Remember: Cross price elasticity is not for normal goods because they have no relationship between them. However, they can be analyzed on the basis of price and income elasticity only.

 




  • Mikel

    View Comments

    • You sure sounds like my economic professor.
      he keeps on talking about elasticity, and most of us are sleeping through his lessons.

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