Define And Explain The Concept

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the income effect and the more elastic the demand will be. This is the reason salt has a very low price elasticity of demand. We spend such a small proportion of income on salt that a relatively big percentage increase in the price of salt is borne by us without too much difficulty, so the income effect would be pretty small.
One other determinant of price elasticity of demand is the time period. When prices rise people may take time to adjust their consumption patterns and find alternatives. The longer the time after a price change, then, the more elastic is demand likely to be.
Income elasticity is a measure of responsiveness of the demand to a change in incomes. Income elasticity is important to firms considering the future market for their product. If the product has a high income elasticity of demand then sales are likely to expand rapidly as national income goes up, but also fall quickly should the economy move into recession. The formula for income elasticity of demand ...

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elasticity of demand is a measure of the responsiveness of demand for one product to a change in the price of a complement or substitute good. The formula for cross elasticity of demand is:
Percentage Change in Demand for Good x
Percentage Change in Price of Good y
If good y is a substitute for good x, x’s demand will rise as y’s price rises. Cross elasticity of demand will be positive in this case. If y is a complement to good x, then x’s demand will fall as y’s price rises. Cross elasticity of demand will be negative in this case. The major determinant of cross elasticity of demand is the closeness of the substitute or complement. The closer it is, the ...

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