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2.3 OTHER ELASTICITIES 51
We can use elasticity to characterize the responsiveness of demand to any of the 2.3

determinants of demand. Two of the more common elasticities in addition to the price OTHER
elasticity of demand are the income elasticity of demand and the cross-price elasticity
of demand. ELASTICITIES

INCOME ELASTICITY OF DEMAND

The income elasticity of demand is the ratio of the percentage change of quantity income elasticity of
demanded to the percentage change of income, holding price and all other determi- demand The ratio of the
nants of demand constant: percentage change of
quantity demanded to the
percentage change of
¢Q 100%
Q income, holding price and
Q,I ¢I all other determinants of
I 100% demand constant.
or, after rearranging terms,

¢Q I
Q, I (2.5)
¢I Q

Table 2.4 shows estimated income elasticities of demand for two different types of
U.S. households: those whose incomes place them below the poverty line and those
whose incomes place them above it. For both types of households, the estimated income
elasticities of demand are positive, indicating that the quantity demanded of the good
increases as income increases. However, it is also possible that income elasticity of de-
mand can be negative. Some studies suggest that in economically advanced countries in
Asia, such as Japan and Taiwan, the income elasticity of demand for rice is negative. 14

TABLE 2.4 Income Elasticity of Demand for Selected Food Products
According to Household Status

Product Estimated Income Estimated Income
Elasticity: Nonpoverty Elasticity: Poverty Status
Status Households Households
Beef 0.4587 0.2657
Pork 0.4869 0.2609
Chicken 0.3603 0.2583
Fish 0.4659 0.3167
Cheese 0.3667 0.2247
Milk 0.4247 0.2650
Fruits 0.3615 0.2955
Vegetables 0.3839 0.2593
Breakfast cereals 0.3792 0.2022
Bread 0.3323 0.1639
Fats and oils 0.4633 0.2515
Food away from home 1.1223 0.6092
Source: Tables 7 and 8, John L. Park, Rodney B. Holcomb, Kellie Curry Raper, and Oral Capps Jr.,
“A Demand Systems Analysis of Food Commodities by U.S. Households Segmented by Income,”
American Journal of Agricultural Economics, 78, no. 2 (May 1996): 290–300.
14 See Shoichi Ito, E. Wesley, F. Peterson, and Warren R. Grant. “Rice in Asia: Is it Becoming an Inferior
Good?,” American Journal of Agricultural Economics, 71 (1989): 32–42.