1.

Distinguish between Income Elasticity and Cross Elasticity.

Answer»

Income Elasticity:

1. Income elasticity of demand is the proportionate change in quantity demanded of a commodity to a given change in the consumer’s income.

2. Income Elasticity of demand are of three types:

  • Positive Income Elasticity is found in case of Normal Goods.
  • Negative Income Elasticity for inferior goods cheap bread, rice, etc.
  • Zero Income Elasticity.

Cross Elasticity:

1. Cross Elasticity of demand is the proportionate change in the quantity demanded of a commodity to a given change in the price of substitute or complementary goods. 

2. Cross Elasticity of demand are of three types:

  • Positive Cross Elasticity is found in case of substitute goods like tea and coffee.
  • Negative Cross Elasticity is seen in case of Complementary Goods.
  • Zero Cross Elasticity in case of unrelated goods like cup and book.


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