Elasticity

Cross Elasticity of Demand

The cross elasticity of demand measures the responsiveness of the quantity demanded, when the price of another good changes. It is defined as the percentage change in the quantity demanded divided the percentage change in the price of the second good.

eAB = (ΔQA/QA)/(ΔPB/PB)

The cross elasticity gives us important information about the economic relation between the goods and services.

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Income Elasticity

Income

The income elasticity of the demand is defined as the proportional change in the quantity demanded, divided the proportional change in the income.

If the consumer income increases, the consumer will be able to purchase a higher quantity of goods and services. The income elasticity of demand measures the responsiveness of the demand with respect to changes in the consumer income.

Income Elasticity of Demand Formula

ei = (ΔQ/Q)/(ΔI/I)

Where:

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