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Income Elasticity of Demand. - Economics

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Income elasticity of demand.

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Solution

Income elasticity of demand:-

Income elasticity of demand may be defined as the degree of responsiveness of quantity demanded to change in income only. Other factors including price remain unchanged. it is written as-

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

Symbolically, Ey = (% ∆ 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 increase in income. Income elasticity of demand is negative when, quantity demanded decreases with increase in income. In case of normal goods income elasticity of demand is positive, whereas in case of inferior goods, income, elasticity of demand is negative. Income elasticity of demand can be zero, one, greater than one and less than one.

Concept: Type of Elasticity of Demand
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