Question

(i) Calculate the income elasticity of demand from the information given below and
also explain the nature (type) of the commodity on the basis of coefficient of
elasticity.

(CO2)

Income (Rs.) Demand (Units)
Rs. 4000 100
Rs. 6000 80

(ii) Calculate the cross elasticity of demand from the following information and on
the basis of that explain the nature (type) of the commodities under consideration.

Price of sugar
(Rs. per kg.)

Demand for
Tea (kgs)
10 50
12 40

Answer 1

Income elasticity of demand is an economic measure of how responsive the quantity demand for a good or service is to a change in income. The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income. Cross (price) elasticity of demand (XED) measures the responsiveness of quantity demanded for one good to a change in the price of another good.

Answer 2

Explanation:

Income elasticity of demand is an economic measure of how responsive the quantity demand for a good or service is to a change in income. The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.

Also called cross-price elasticity of demand, this measurement is calculated by taking the percentage change in the quantity demanded of one good and dividing it by the percentage change in the price of the other good.