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Questions
Income elasticity of demand.
What is income elasticity of demand?
Explain the following:
Income Elasticity of Demand
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Solution
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, 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 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.
Notes
Students should refer to the answer according to their question and preferred marks.
