Answer to Question #43629 in Economics of Enterprise for Abdelaali

Question

why do we need to study crass elasticity of demand and income elasticity of demand

Answer 1

We need to study elasticity because it gives understanding on how demand will change if price or income change. Income elasticity of demand shows how demand increase with increase of income. At the same time price elasticity of demand shows how demand changes after price changes.

As long as we have market where all factors are correlated, we need to evaluate cross elasticity. Usually it happens at the same time when prices change and income change. So we need to evaluate effect of these two factors simultaneously.