Cross Elasticity and Income Elasticity

A. Cross Elasticity of Demand
The cross elasticity of demand is a measure of the extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same.
1. The formula used to calculate the cross elasticity of demand is:

Cross elasticity of demand = Percentage change in quantity demanded of a good
                                 Percentage change in price of one of its substitute s or complement s

2. The cross elasticity of demand for a substitute is positive.
3. The cross elasticity of demand for a complement is negative.

B. Income Elasticity of Demand
The income elasticity of demand is a measure of the extent to which the demand for a good changes when income changes, other things remaining the same.
1. The formula used to calculate the income elasticity of demand is:

Income elasticity of demand = Percentage change in quantity demanded
                                                   Percentage change in income