Question

Income elasticity of demand.

What is income elasticity of demand?

Explain the following:

Income Elasticity of Demand

Answer 1

It is the ratio between percentage change in quantity demanded and percentage change in the income of a consumer. It is written as

Ey = Percentage change in quantity demanded ÷ Percentage change in income

Symbolically, E_y = (% ∆ Qd) ÷ (% ∆Y)

Here: Q = quantity demanded, Y = income, ∆ = Change,

Income elasticity of demand is positive when demand increases with increasing income. Income elasticity of demand is negative when quantity demanded decreases with an increase in income. Income elasticity of demand is negative when quantity demanded decreases with an increase in income. In the case of normal goods, income elasticity of demand is positive, whereas in the case of inferior goods, income elasticity of demand is negative. Income elasticity of demand can be zero, one, greater than one, or less than one.