2.5 Other Elasticities

• What does cross-price elasticity of demand measure?

  Demand change due to price change
• The formula to calculate cross-price elasticity is E_{xy}
• What does E_{xy} = \frac{\%\text{ Change in Quantity of Good x}}{\%\text{ Change in Price of Good y}}</latex> represent?

  Cross-price elasticity of demand
• The cross-price elasticity of demand can be either positive or negative.
• Match the elasticity value with the type of good:

  $E_{xy} > 0$ ↔️ Substitute Goods

  $E_{xy} < 0$ ↔️ Complementary Goods
• If the price of tea increases by 10% and the demand for coffee increases by 15%, what is the cross-price elasticity?

  1.5
• If the price of tea increases by 10% and the demand for coffee increases by 15%, the cross-price elasticity is 1.5
• What type of cross-price elasticity do substitute goods have?

  Positive
• Complementary goods have a negative cross-price elasticity of demand.
• If the price of tea increases by 10% and the demand for coffee increases by 15%, the cross-price elasticity is 1.5
• What does a positive cross-price elasticity indicate about the relationship between two goods?

  They are substitutes
• If the price of tea increases by 10% and the demand for coffee increases by 15%, the cross-price elasticity is 1.5.
• The formula for cross-price elasticity of demand is $E_{xy}$
• If the price of tea increases by 10% and the demand for coffee increases by 15%, the cross-price elasticity is 1.5
• Cross-price elasticity values can determine if goods are substitutes or complements.
• A positive cross-price elasticity indicates substitute goods.
• A negative cross-price elasticity indicates complementary goods.
• An example of substitute goods is tea and coffee.
• An example of complementary goods is cars and gasoline.
• Cross-price elasticity of demand measures the percentage change in quantity demanded in response to a change in price.
• Cross-price elasticity can determine if goods are substitutes or complements.
• What does cross-price elasticity of demand measure?

  Demand change due to price change
• Substitute goods have a positive elasticity value.
• Complementary goods have a negative elasticity value.
• Match the sign of cross-price elasticity with the relationship between goods:

  Positive ↔️ Substitutes

  Negative ↔️ Complements
• What happens to the demand for a substitute good when the price of another good increases?

  Increases
• Complementary goods are used together.
• What is the formula for income elasticity of demand?

  $E_{i} =$ \frac{\%\text{ Change \in Quantity Demanded}}{\%\text{ Change \in Income}}
• An inferior good has a negative income elasticity value.
• What happens to the demand for cheap instant noodles as income increases?

  Decreases
• As income increases, the demand for inferior goods decreases.
• How does income affect the demand for a normal good?

  Demand increases
• For an inferior good, demand decreases as income increases
• Provide an example of a normal good.

  Organic vegetables
• Provide an example of an inferior good.

  Cheap instant noodles
• Income elasticity helps businesses predict the impact of income changes on their sales.
• What does cross-price elasticity of demand measure?

  Change in quantity demanded
• The formula for cross-price elasticity is $E_{xy}$
• Match the goods relationship with its elasticity value:

  Substitute Goods ↔️ Positive

  Complementary Goods ↔️ Negative
• If the cross-price elasticity between coffee and tea is 1.5, what type of goods are they?

  Substitute goods