Microeconomics,, 16th Canadian Edition

4.4 Other Demand Elasticities LO 5, 6

Income elasticity of demand is a measure of the extent to which the

quantity demanded of a product responds to a change in income.

Represented by the symbol it is defined as

Normal goods have a positive income elasticity; inferior goods have a

negative income elasticity.

Cross elasticity of demand is a measure of the extent to which the

quantity demanded of a product responds to a change in the price of

a different product. Represented by the symbol it is defined as

It is used to define products that are substitutes for one another

(positive cross elasticity) and products that are complements for one

another (negative cross elasticity).

ηY,

ηY =PercentagePercentagechangechangeinquantityinincomedemanded

ηXY,

ηXY=PercentagePercentagechangechangeinquantityinpricedemandedofgoodofYgoodX