1. Income Elasticity

2. Income Elasticity
% change in quantity demanded
% change in Income

3. Income Elasticity
1)Less than Zero 2)
3) More than one

4. 1)Less than Zero Negative -------- Inferior good.
If Income increase Quantity demanded decrease.
If Income decrease Quantity demanded increase.

5. 2) More than zero & less than 1
Normal Good
Income Elasticity= % change in Qd
% Change in Income
% change in Income > % change in Qd

6. 3) Greater than 1 Luxury Goods Income Elasticity= % change in Qd
% change in Income
% change in Qd > % change in Income

7. Income Elasticity
Qd2 – Qd1 * Y1
Y2 – Y Qd1

8. Example 1 I f income increase from $ 500 to $ 800 ,
quantity demanded decrease from 50 K.g to 30 K.g.
What is Income Elasticity, Meaning and type?

9. Income Elasticity 1)Qd2 – Qd1 * Y1 Y2 – Y1 Qd1 30- 50 * 500 = - 0.67
* =
2) Type = Inferior good
3) If income inc. by 1 % , Qd will dec. by o.67 %.

10. Example 2
If the income doubled from 50 L.E to 100 L.E and the Qd decreased from 600 kilos to 400 kilos. Find the income elasticity and explain its meaning.

11. 1)Qd2 – Qd1 * Y1
Y2 – Y Qd1
* =
2) Type = Inferior good
3) If income inc. by 1 % , Qd will dec. by o.33 %.

12. Cross Elasticity
% change in Qd of (Y)
% change in price of (X)

13. 1) Greater than Zero Positive-------------- substitutes ( Tea, coffee)
If p tea inc Qd tea dec Qd coffee inc.
% change in quantity demand of( coffee)
% change in price of (tea)

14. 2)Less than Zero Negative----------- complements( Tea, sugar)
If p tea inc Qd tea dec Qd sugar dec.
% change in quantity demand of Sugar
% change in price of tea

15. 3) Zero
Independent (Pen & A.c )

16. Cross Elasticity
Qd2y – Qd1y * Px1
Px2 – Px Qd1y

17. Example 1 If the price of good x decreased from L.E 8 to L.E 5,
the quantity demand of Y decrease from 1000 to 800 Kilos , Find the cross Elasticity?

18. Elasticity = * 8 =
Then the 2 goods are substitute.
If price of x dec. by 1 %, Qd of y will dec. by 0.53 %.