Understanding Income Elasticity and Cross Elasticity of Demand

The video tutorial covers the concepts of income elasticity of demand (YED) and cross elasticity of demand (XED). YED measures how demand for a good changes with consumer income, classifying goods as inferior, normal, or luxury based on YED values. XED measures how demand for one good responds to price changes in another, identifying goods as complements or substitutes. The tutorial explains the formulas for calculating YED and XED and discusses the implications of different elasticity values.

What does a negative YD value indicate about a good?

• The good is a substitute good.

• The good is a luxury good.

• The good is a normal good.

• The good is an inferior good.

Which type of goods have a YD value greater than one?

• Complementary goods

• Inferior goods

• Normal goods

• Luxury goods

What does a negative XED value suggest about two goods?

• They are inferior goods.

• They are luxury goods.

• They are complementary goods.

• They are substitute goods.

If the price of good A rises and the demand for good B also rises, what can be inferred about the relationship between the two goods?

• They are inferior goods.

• They are substitute goods.

• They are luxury goods.

• They are complementary goods.

What is the significance of understanding YD and XED in economics?

• To predict consumer behavior in response to price and income changes.

• To determine the quality of goods.

• To calculate the production cost of goods.

• To classify goods as either durable or non-durable.