Question

Find below the data for price elasticity and income elasticity of demand for 5 different commodities. Interpret the values in the table in the light of• Whether the demand is elastic or inelastic for each of the commodities and why• What do you mean by negative income elastic demand in case of commodity Give example for each type of commodity. Commodity Price Elasticity of demand Income elasticity of demand 1 -0.3 +0.6 2 -1.45 +5.60 3 -5.09 -1.67 4 -0.7 +0.8 5 1.0 +1.0

Answer 1

Income elasticity of demand measures the relationship between a change in  of demand so as consumers' income rises more is demanded at each price i.e. there  elasticity of demand of between 0 and +1 for example, if income increases by . As we become better off, we can afford to increase our spending on different