Suppose the own price elasticity of demand for good X is –2, its income elasticity is 3, and the cross-price elasticity of demand between it and good Y is –6. A. Interpret the elasticity coefficients. B. Determine how much consumption of this good will change if: B.1 The price of good X increases by 5%.  B.2 The price of good Y increases by 10%.  B.3 Income falls by 3%.

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A:

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Q: None

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A:

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Elasticity of Demand and Supply

The elasticity of demand and supply are two important concepts of microeconomics. The elasticity of demand measures the responsiveness of consumers’ demands to the price change, changes in income of consumers, and changes in the price of the related goods. Similarly, the elasticity of supply refers to the proportionate change in the quantity supplied due to the proportionate change in the price. In other words, it can be said that elasticity of supply measures how the quantity of supply changes when the price changes of that particular product.