Differentiate between 'cross elasticity of demand' and 'income elasticity of demand'.

Here are the answers to your questions:

1. Differentiate between 'cross elasticity of demand' and 'income elasticity of demand'.

   • Cross elasticity of demand (XED) measures the responsiveness of the quantity demanded of one good to a change in the price of another good. It indicates whether goods are substitutes (positive XED) or complements (negative XED).
   • Income elasticity of demand (YED) measures the responsiveness of the quantity demanded of a good to a change in consumers' income. It indicates whether a good is normal (positive YED) or inferior (negative YED).

2. Discuss the FIVE types of elasticity of demand.

   • Perfectly elastic demand: Quantity demanded changes infinitely with a tiny change in price. The demand curve is horizontal.
   • Relatively elastic demand: The percentage change in quantity demanded is greater than the percentage change in price ($E_d > 1$). Consumers are very responsive to price changes.
   • Unitary elastic demand: The percentage change in quantity demanded is equal to the percentage change in price ($E_d = 1$). Total revenue remains constant with price changes.
   • Relatively inelastic demand: The percentage change in quantity demanded is less than the percentage change in price ($E_d < 1$). Consumers are not very responsive to price changes.
   • Perfectly inelastic demand: Quantity demanded does not change at all, regardless of the change in price ($E_d = 0$). The demand curve is vertical.

3. List any SIX factors which determine the elasticity of demand.

   • Availability of close substitutes
   • Whether the good is a necessity or a luxury
   • The proportion of income spent on the good
   • The time horizon considered
   • The definition of the market
   • The addictiveness or habit-forming nature of the good

4. In a tabular form, indicate any TWO differences between 'macro-economics' and 'micro-economics'.

   Feature	Macroeconomics	Microeconomics
   Scope	Studies the economy as a whole (aggregate level).	Studies individual economic units (firms, households).
   Key Concerns	Deals with national income, inflation, unemployment.	Deals with individual prices, output, consumer behavior.

5. Explain the term 'opportunity cost'.

   • Opportunity cost is the value of the next best alternative that must be foregone when a choice is made. It represents what is given up in order to obtain something else.