Question

Explain the various ways in which changes in income and the prices of other goods affect the elasticity of demand for a particular good.

Answer 1

Elasticity of demand for a good depends non price factors that include income of buyers and price of related goods. Income of buyer is a specific determinant where demand for normal goods is increased and that of an inferior good falls when there is an increase in consumer's income. For normal goods, income elasticity is always positive. It can be greater than or less than 1 but will always be greater than 0 for normal goods. For inferior goods, it is negative

Cross price elasticity of demand measures change in the quantity of a product demanded as its price of its related good changes. The relationship can be complementary in nature where the two goods are used together to satisfy a given desire. The relationship can be related to subtitution so that a relatively cheaper substitutes is purchased when it is available. For complements, price elasticity is negative suggesting that a fall in price of one good increases its consumption as well as the demand for its complemtary good. For the substitute, the elasticity is positive.