Distinguish between the concepts of income elasticity of demand (YED) and cross price elasticity of demand (XED)

In economics, elasticities are an indicator of the responsiveness of demand after a change in price or income. Income elasticity of demand is the relative change in demand of one good or service following a change in the consumer’s income. Cross price elasticity of demand is the relative change in the demand of one good or service following a change in a change in price of another good or service. Income elasticity of demand is useful in economics because it helps us determine the difference between normal goods and inferior goods. Normal goods are goods whose demand will increase as income goes up (positive YED), an example of a normal good is organic food. Inferior goods are goods whose demand decreases as income goes up (negative YED), an example of an inferior good is clothing from cheaper brands such as Primark. The higher the value of YED the more demand will change after a proportionally small change in income. Necessities such as water will have a low YED (0 to 1, demand inelastic) whereas luxuries such as sports cars will have a YED superior to 1 until infinity (demand elastic). The Engel curve shows the relationship between the demand of for good and changes in income over time. Cross price elasticity of demand is used to determine whether two products are substitutes or complements. Substitutes are two goods which have a very similar function are are more or less interchangeable such as skateboards and long-boards or white bread and brown bread (positive XED). Complements are two goods which are mostly used together and at the same time such as a toothbrush and a toothpaste or car engines and car wheels (negative XED). In conclusion, both income elasticity of demand and cross price elasticity of demand focus on the responsiveness of demand but YED revolves around changes in income whereas XED revolves around changes in the price of other goods and services.