Elasticity of Demand and Supply - Income Elasticity of Demand
3 important questions on Elasticity of Demand and Supply - Income Elasticity of Demand
What is income elasticity of demand, and how is it calculated?
It measure the degree to which the quantity demanded of a product responds to a change in consumers' incomes. Calculated:
E = percentage change in quantity demanded (change/(average before and after/2))
percentage change in income (change/(average before and after/2))
E = percentage change in quantity demanded (change/(average before and after/2))
percentage change in income (change/(average before and after/2))
What does it mean if the income elasticity of demand is positive?
That people buy more of that product if their income rises. Applies to most normal and superior goods.
What does it mean if the income elasticity of demand is negative?
It means the product is an inferior good: people change to better quality or brands when their incomes rise.
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