Income Elasticity of Demand:

 Income Elasticity of demand measures the responsiveness in quantity demanded of a

goods or services in response to the change in in income of consumer.
 Income elasticity of demand is the percentage change in quantity demanded resulting
from 1 percent change in consumer’s income.
 Income elasticity of demand can be calculated as:

Income elasticity = Proportionate change in quantity demanded

Proportionate change in Income

Income elasticity =
ΔQ x Y
ΔY Q
 Types of Income elasticity of demand:
i. Zero income elasticity (Ey = 0)
ii. Income elasticity greater than unity (Ey > 1)
iii. Income elasticity less than unity (Ey < 1)

Cross Elasticity of Demand:

 Some goods are related to each other, where a change in price of a commodity causes
change in the demand for another commodity.
 Related goods may be substitute goods (e.g. Tea and coffee) or complementary goods
(motorbike and petrol).
 Cross elasticity of demand measures the responsiveness of quantity demanded of a
commodity to the change in price of other commodity.
 Cross elasticity of demand is the measure of percentage change in quantity demanded
of commodity x due to 1 percent change in the price of commodity y.
 Cross elasticity of demand can be calculated as:

Cross elasticity = Proportionate change in quantity demanded of commodity X

Proportionate change in Price of commodity Y

Cross elasticity =
ΔQx x Py
Δ Py Qx
 Types of cross elasticity of demand:
i. Positive cross elasticity (Ec > 0): for substitute goods.
ii. Negative cross elasticity (Ec < 0): for complementary goods.