# If a price increases for evian water this will cause

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Example: Suppose product X is Evian water and product Y is Dasani water. If a price increases for Evian water, this will cause consumers to buy more Dasani water.Complementary GoodsWhen cross elasticity is negative, we know that X and Y go together.Independent GoodsA 0 or non-0 elasticity indicates that the two products being considered are unrelated or independent goods.oExample: We would not expect a change in the price of say walnuts to have any effect on purchases of photo paper, and vice versaIncome Elasticity of DemandPercentage change in quantity demandedPercentage change in incomeIncome elasticity of demand: Measures the responsiveness of consumer purchases to income changesNormal GoodsFor most goods, the income elasticity coefficient Eiis positive, meaning that more of them are demanded as incomes rise.The value of Eivaries greatly among normal goods:oIncome elasticity of demand for automobiles is about +3.00 while farm products sit at +0.20Inferior GoodsA negativeincome elasticity coefficient designates an inferior good. oRetread tires, cabbage, long-distance bus tickets, and used clothing are likely candidates. Consumers decrease purchasing inferior goods once their income rises.Ei=
Insights to the EconomyHelps provide insights into the Canadian economyoIncome elasticity helps to explain the expansion and contraction of industries.In our Canadian economy, health care products, housing, and automobile spending is income elastic, while agriculture isn’t. Consumers spend roughly the same amount on agriculture regardless of their income because it is a necessity. 4.5: Elasticity and Real-World ApplicationsElasticity and Tax IncidenceSuppose that the winery in the Niagara region are selling bottles of wine for \$4. The government imposes a \$2 tax per bottle. Who pays for it?Refer to figure 4-5 on page 105Division of BurdenBoth the sellers (suppliers) and consumers pay the price for the imposed tax.This sub-section is best explained by the textbook as the graph is needed to compare. oRefer to figure 4-5 on page 105ElasticitiesIf the elasticities of demand and supply were different from those shown in figure 4-5, theincidence of tax would also be different. There are two generalizations:o1. With a specific supply, the more inelastic the demand for the product, the largerthe portion of the tax shifted to consumers. Refer to entire text in relation to figure 4-6 on page 106.o2. With a specific demand, the more inelastic the supply, the larger the portion of the tax paid by producers.Refer to entire text in relation to figure 4-6 on page 106