INCOME ELASTICITY OF DEMAND

Income Elasticity of demand
Income elasticity of demand refers to the degree of responsiveness of demand
to changes in income of consumers. It measures how changes in income of
consumers will affect the quantity of commodities demanded by such
consumers.
Income elasticity of demand is negative for inferior goods since an increase in
income will leads to a decreased demand for them.
Income elasticity of demand is measured
co-efficient of income elasticity of demand =
%change in quantity demanded / % change in income. i.e %change in quantity
demanded divides by %change in income

TYPES OF INCOME ELASTICITY OF DEMAND

1. Positive income Elasticity of demand. Income elasticity is said to be
positive if an increase in income of consumers leads to increase in the
quantity demand. This applies to normal commodities.
2. Negative income Elasticity of Demand: if an increase in income of
consumers leads to decrease in quantity of goods and services demand,
income elasticity is said to be negative. In such a situation, demand falls
as income of consumers rises. This applicable to inferior goods