Classifications of different goods with respect to price, income and cross elasticities.

Q. How can you classify different goods with respect to price, income and cross elasticities?

Ans.    

The formulae of price, income and cross elasticities are given by

a)     e_P (price elasticity)=dQ/dP x P/Q

b)     e_Y  (Income elasticity)=dQ/dY x Y/Q and

c)      e_C (cross Price elasticity)=dQ₂/dP₁ x P₁/Q₂

v  e_P (normal and giffen goods)

When e_P<0, the corresponding good is a normal good.

 When e_P>0, the corresponding good is a Giffen good. It may also be a luxury good.

v  e_Y (Normal good and Inferior good)

When e_Y>0, the corresponding good is a normal good.

When e_Y<0, the corresponding good is an inferior good.

v  e_C (Substitutes and complementaries)

 When e_C>0, the corresponding goods are substitutes.

When e_C<0, the corresponding goods are complementary goods.

Q. What are the change in quantity supplied and change in supply? 

Ans.    

Change in Quantity Supplied: Change in quantity supplied represents the change in quantity to be supplied and corresponding price along the same supply curve of a commodity or service.

Change in Supply: Change in supply represents the shift (either upward or downward) due to change in one or more of the determinants of supply (technology and cost etc). Addition of new suppliers or sellers will displays the market supply curve to the right and similarly withdrawal of existing suppliers or sellers will displays the market supply curve to the left.