Figure 5.7 When we compute the income elasticity of demand, we are looking at the change in the quantity demanded at a specific price We are thus dealing with a change that shifts the demand curve An increase in income shifts the demand for a normal good to the right; it shifts the demand for an inferior good to the left Cross Price Elasticity of Demand The demand for a good or service is affected by the prices of related goods or services A reduction in the price of salsa, for example, would increase the demand for chips, suggesting that salsa is a complement of chips A reduction in the price of chips, however, would reduce the demand for peanuts, suggesting that chips are a substitute for peanuts Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 260