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Question
What does income elasticity of demand show?
Short Answer
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Solution
Income elasticity of demand refers to how sensitive the quantity demanded of a good is to changes in a consumer’s income. It indicates the percentage change in quantity demanded resulting from a percentage change in income. This responsiveness is calculated as the ratio of the relative (or percentage) change in quantity demanded to the relative change in consumer income.
ey = `"Percentage change in quantity demanded"/"Percentage change in income"`
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