#simple and powerful presentation#

1. Presented To:
Prof. Dr. Nischay kumar upamannyu
POWERPOINT PRESENTATION
INCOME AND CROSS ELASTICITY OF DEMAND
BATCH- 2020-2023
Presented By:
Ankita Sharma,
Sachin Savita,
Prince Rajput
B.Com Honours sem-1

2. i
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3. Income Elasticity of Demand
 Income elasticity of demand measures the responsiveness of Quantity demanded
to changes in real income.
 Where the quantity demanded is determined by the income of the consumers.
 In other words, Income Elasticity of Demand measures by how much the quantity
demanded changes with respect to the change in income.

4.  Mathematical Expression:
Income Elasticity of Demand (YED) = % change in quantity demanded of the product
% change in consumers’ income
For Example:
A rise in consumer real income of 7% leads to an 9.5% rise in demand for pizza deliveries.
The income elasticity of demand: = 9.5/ 7 = +1.36
* When income of the consumer increases his quantity demand of the product also increases
vice versa.*

5. Normal Goods:
Goods with a positive(+) income
elasticity of demand are normal
goods.
If income increases quantity
demand also increases or if
income decreases then quantity
demand also decreases.
Inferior Goods:
Goods with a negative(-) income
elasticity of demand are inferior
goods.
If income increases quantity
demand decreases or if income
decreases then quantity demand
increases.

6.  Normal goods can further be classified as luxury or essential goods.
If income elasticity of demand is greater than one – luxury good.
If income elasticity of demand is less than one – essential good.
Effect Income elasticity
coefficient
Classification of good
A proportionately larger
change in the quantity
demanded
>1 Luxury good
A proportionately smaller
change in the quantity
demanded
<1 Normal good
A negative change in the
quantity demanded
<0 Inferior good

8. Few Examples
Luxury Goods
Air Travel
Fine Wines
Antique Furniture
Designer Clothes
Private health care
Normal Goods
Rail travel
Fresh Vegetables
Spending on utilities
branded clothes
Common health care
Inferior Goods
Bus travel
Frozen Vegetables
Cheap snacks
Simple clothes
Poor health care

10. Cross Elasticity of Demand
 The cross-price elasticity of demand is the degree of responsiveness of
quantity demanded of a commodity due to the change in price of another
commodity.
 It is measured as the percentage change in quantity demanded for the first
good that occurs in response to a percentage change in price of the second
good.

11. Mathematical Expression
 Cross Elasticity of Demand (XED) = % change in quantity demanded of the product A
% change in the price of product B
For example: if there is an increase in the price of tea by 10%. and the quantity demanded for
coffee increases by 2%, then the cross elasticity of demand = 2/10 = +0.2
• Substitute goods will have a positive cross-elasticity of demand.
• Complements will have a negative cross elasticity of demand.

12.  With cross price elasticity we make an important distinction between
substitute products and complementary goods and services.
Substitutes Goods Complements Goods
For substitutes >> cross elasticity of
demand is positive(+).
For complements >> cross elasticity of
demand is negative(-).
If price of one product increase, the
demand for other substitute goods increases
or vice versa, then The Cross Elasticity of
Demand between the two substitutes is
Positive.
If price of one product increase, the
demand for other Complementary goods
decreases or vice versa, then The Cross
Elasticity of Demand between the two
Complementary is Negative.
Tea and Coffee, Google and Yahoo. Petrol and Petrol car, Pen and Ink.

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