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Examining the Importance of Income and Cross Elasticities of Demand to Business Decision Making For the purpose of Business Decision making, firms are interested in the responsiveness of demand to determinants such as the relationship between consumers' income and the prices of substitutes and complimentary goods in comparison to their own products. If for example a firm is considering changing the price of a particular good, it is essential that the effect of the price change on the quantity demanded is assessed. There are many economic tools to measure this relationship, two of which will be the topic of discussion. The Income Elasticity of Demand () Income Elasticity of demand is defined as the responsiveness of demand to a change in consumers' income (Y). The basic formula for calculating the coefficient of income elasticity is: Percentage change in quantity demanded of good X = Percentage change in real consumers' income Normal Goods Normal goods have a...

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