What do we mean by each of the following Own price elastici

. What do we mean by each of the following:- Own price elasticity of demand; Cross price elasticity of demand; Income elasticity of demand? Interpret each of the following statements:- (a) Own price elasticity of demand for LCD TV is 2.9 (b) Own price elasticity of demand for bread is 0.6 (c) Cross price elasticity of demand between milk and juice is 0.4 (d) Cross price elasticity of demand between milk and bread is-0.7 (e) Income elasticity of demand for LCD TV is 2.9. (f) Income elasticity of demand for cigarettes is 0.5. (g) Income elasticity of demand for thrifty store clothes is -0.8

Solution

Own price elasticity of demand measure the responsiveness of the quantity demand of the good due to the change in the price of its own good.

The cross-price elasticity of demand measure the responsiveness of the quantity demand of a good due to the change in the price of another good.

The Income elasticity of demand measure the responsiveness of the quantity demand of the good due to the change in the income of the consumer.

(a) Since the own price elasticity of demand for LCD TV is 2.9, it means the quantity demand of the LCD TV is more responsive due to the change in its price.

(b)

Since the own price elasticity of demand for bread is 0.6, it means the quantity demand of the Bread is less responsive due to the change in its price.

(c) Since the cross-price elasticity of demand between milk and juice is 0.4, it means both milk and juice is substitute goods and price of a good and quantity demand of its substitute goods is positively related. It means the quantity demand is less responsive due to the change in the price of its substitute good.

(d)

Since the cross-price elasticity of demand between milk and juice is -0.7, it means both milk and bread are complementary goods and price of a good and quantity demand of its complementary goods is negatively related. It means the quantity demand is less responsive due to the change in the price of its complementary good.

(e)

Since the income elasticity of demand for LCD TV is 2.9, it means the quantity demand of the LCD TV is more responsive due to the change in the income of the consumers.The positive sign shows that LCD TV is a normal goods.

(f)

Since the income elasticity of demand for cigarettes is 0.5, it means the quantity demand of the cigarettes is less responsive due to the change in the income of the consumers. The positive sign shows that cigarettes are a normal goods.

(g)

Since the income elasticity of demand for thrifty store clothes is -0.8, it means the quantity demand of the thrifty store clothes is a little bit less responsive due to the change in the income of the consumers. The negative sign shows that thrifty store clothes are inferior goods.