The cross-price elasticity of demand measures the percentage change in the quantity of a good demanded when the price of a different good changes by 1%. The income elasticity of demand measures the percentage change in the quantity of a good demanded when the income of buyers changes by 1%.
a. What sign might you expect the cross-price elasticity to have if the two goods are shampoo and conditioner? Why?
b. What sign might you expect the cross-price elasticity to have if the two goods are gasoline and ethanol? Why?
c. What sign might you expect the cross-price elasticity to have if the two goods are coffee and shoes? Why?
d. What sign might you expect the income elasticity to have if the good in question is hot stone massages?
e. What sign might you expect the income elasticity to have if the good in question is Ramen noodles?
f. What sign might you expect the income elasticity to have if the good in question is table salt?