Select a product and discuss factors that affect its price, income, and cross el

Question

Select a product and discuss factors that affect its price, income, and cross elasticity of demand. For example, if you select table salt, you could argue that since its price is low relative to income and it is generally considered a necessity, it has very inelastic price elasticity of demand. It has low or close to zero income elasticity of demand because people do not tend to consume more of it as income rises. The cross elasticity of demand between salt and salt substitutes would be positive because the products are substitutes. Foods that typically are used with salt would be complements, and they would have negative cross elasticity of demand.

Explanation / Answer

We can select toothpaste for example. AS like the table salt its price is low and is a necessity so has a very inelastic price elasticity of demand. With incraesing income people do not tend to use more of toothpaste so it has a close to zero income elasticity.The cross elasticity between demand of toothpaste and its subtitues is positive because they are perfectly substitutes. Brushes ued with toothpaste are compliments and they have negative cross elasticity of demand.

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