Micro Unit 2.5 CW: Elasticity and Applications (MS)

Cross elasticity of demand measures the effect of a change in the price of one product upon the quantity demanded of another product.

Income elasticity measures the effect of a change in income upon the purchases of some good or service.

If the coefficient of income elasticity of demand is positive, the product is an inferior good.

If the coefficient of cross elasticity of demand is positive, the two products are complementary goods.

An income elasticity coefficient of -1.8 means the product is a normal good.

A cross elasticity of demand coefficient of +2.5 indicates that the two products are substitutes.

We would expect the coefficient of cross elasticity of demand for cameras and film to be positive.