Question

Distinguish between income elasticity of demand and cross elasticity of demand. Include in your answer a provision of their formula?.

Can I please have a detailed answer.

Answer 1

Income elasticity of demand tends to be the one measuring the way demand responds to income changes. It is always positive for the normal good while negative for inferior good. Cross elasticity of demand tends to measure demand responsiveness for a respective good to another commodity's price changes.

$Crosselasticityofdemand(Exy)=\frac{percentagechangeinthedemandedQuantityofX}{percentage change in price of Y}$

$Income elasticity of demand = \frac {Change in quantity demanded}{Change in income}$