Essay: Income and Cross elasticity of demand; an Example

Sample Essay

Income elasticity of demand is the measure of the responsiveness of demand for a good or service to a change in income, other things remaining the same (Young, 1987). It is calculated using the following formula:

Income elasticity of demand = % change in quantity demanded / % change in income (Young, 1987)

At I = 2.3, QZ = 4.485

At I = 3.3 (other things remaining the same):

QZ = 1.0 – 2.0PZ + 0.7I + 1.5PA + 0.5PB + 1.5A

QZ = 1.0 – 2.0 (6) + 0.7 (3.3) + 1.5 (6.25) + 0.5 (4.5) + 1.5 (1.5)

QZ = 5.185

Therefore,

Income Elasticity of demand =          (5.185-4.485/4.485) / (3.3-2.3/2.3)

=          1.6

Cross Elasticity of demand is a measure of the responsiveness of the demand for a good to a change in the price of a substitute or complement, other things remaining the same (Lipsey, 1999). We calculate the cross elasticity of demand using the following formula:

Cross Elasticity of demand     =          % change in quantity demanded / % change in price of substitute or complement

The competitive brand of powdered laundry detergent is a substitute, whereas liquid laundry detergent is a complimentary good.

When PA, the price of the competitive brand of powdered laundry detergent, in dollars per box, was $6.25, QZ = 4.485

When PA = 7.25, (other things remaining the same)

QZ = 1.0 – 2.0PZ + 0.7I + 1.5PA + 0.5PB + 1.5A

QZ = 1.0 – 2.0 (6) + 0.7 (2.3) + 1.5 (7.25) + 0.5 (4.5) + 1.5 (1.5)

QZ = 5.985

Therefore,

Cross Elasticity of demand     =          (5.985-4.485/4.485) / (7.25-6.25/6.25)

=          2.1

Thank you for visiting Essaydemon.com and viewing our articles and sample papers. Kindly be informed that all these articles and sample papers are for marketing purposes only. The sole purpose of these articles and sample papers is just to provide our customers with an idea about our services before they place an order.

Kindly visit our order/inquiry page for further assistance.

Kindly order custom made Essays, Term Papers, Research Papers, Thesis, Dissertation, Assignment, Book Reports, Reviews, Presentations, Projects, Case Studies, Coursework, Homework, Creative Writing, Critical Thinking, on the topic by clicking on the order page.

Related pages

Countless students worldwide are satisfied with our professional services.

  • 100% original, custom Writing or 100% Money Back guarantee!
  • 100% Confidentiality: Your information is secure at all time.
  • We guarantee that you will never regret for choosing us.
  • 100% guaranteed plagiarism free writing.
  • Urgent delivery: Meet your deadline and deliver your custom essay.
  • No hidden charges: the price you see is the final cost for all custom papers.
  • Excellent 24 hours 7 Days a week free friendly customer support system

FREE Outline, FREE Title page, FREE Bibliography, FREE E-mail delivery, FREE Formatting

. PopUpScript