1.15 Cross Elasticty Of Demand, Income Elasticity If Demand

Question 1

What is XED?

Answer 1

Cross price elasticity of demand measures the responsiveness of demand for one good to changes in the price of another good

Question 2

What is the equation for XED?

Answer 2

% change in quantity demanded / % change in the price

Question 3

What is the XED of substitute goods?

Answer 3

Positive

Question 4

What is the XED of complement goods?

Answer 4

Negative. The more negative the XED, the closer they are as complement goods

Question 5

What is the XED of unrelated goods?

Answer 5

0

Question 6

What is YED?

Answer 6

Income elasticity of demand measures the responsiveness of demand to changes in income

Question 7

What is the equation for YED?

Answer 7

% change in quantity demanded / % change in income

Question 8

Define normal good

Answer 8

A normal good is when demand increases as people’s income rises
- e.g. phones

Question 9

What is the YED of normal goods?

Answer 9

Positive

Question 10

Define inferior goods

Answer 10

This is when demand drops when people’s incomes rise
E.g. a cycle

Question 11

What is the YED of inferior goods?

Answer 11

Negative

Question 12

How are normal goods classified?

Answer 12

As either income elastic or income elastic

Question 13

What does the YED have to be for them to be classified as income inelastic

Answer 13

0-1

Question 14

What tends to be income inelastic?

Answer 14

Necessities

Question 15

What does YED have to be for them to be classified as income elastic?

Answer 15

Bigger than 1

Question 16

What tends to be income elastic

Answer 16

Luxuries