Relationship between income elasticity of two (preference) independent bundles of goods A and B, and the cross price elasticity of demand for a bundle of goods A with respect to B.
posted on 2016-03-21, 05:30authored byLorenzo Sabatelli
The cross price elasticity is negative, null or positive, depending on whether the income elasticity of B is smaller of, equal to, or larger of the absolute value of the elasticity of the marginal utility of income. The average budget share is equal to 0.05 and the elasticity of the marginal utility of income is equal to -1.26.