# Comparison between the Terms of Supply and Demand

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Define the Following three terms: Elasticity of Demand- elasticity of demand is used to determine the relationship between total revenue and price. It is calculated by dividing the percentage change in the quantity of a good demanded by the percentage change in the price of said quantity (Varian,2005). Cross-Price elasticity- cross price elasticity measures the degree to which two or more goods can serve as substitutes or complements of one another. If the cross-price elasticity, meaning that as the price for good A increases demand for good B rises, is greater than 1 than the two items are substitutes. If on the other hand, as the price for good a increases the demand for good B decreases the two items are complements- meaning that the consumers tend to purchase them together and when A becomes cost prohibitive so does good B (Varian, 2005). Income elasticity (include normal and inferior goods) - income elasticity measures the relationship between a percentage change in a consumer's income and any corresponding changes for demand of a particular good. It is calculated by dividing the change in quantity demanded by the percentage change in the consumer's income (Varian, 2005). Explain the elasticity coefficients for each of the three terms defined in part A. Elasticity of Demand Coefficient- the coefficients for elasticity of demand are <1, =1 >1. If the coefficient is less than one, than demand is inelastic- meaning that when the price on a good is decreased the