The Income Elasticity of Demand

The income elasticity of demand measures how the quantity demanded changes as consumer income changes. It is calculated as the  percentage change in quantity demanded divided by the percentage change in income. That is,

Income elasticity 0f demand = Percentagechange in quantity demanded
Percentagechange in income

As we discussed in Chapter 4, most goods are normal goods  Higher income raises the quantity demanded. Because quantity demanded and income move in the same direction, normal goods have positive income  elasticities. A few goods, such as bus rides, are inferior goods. Higher  ncome lowers the quantity demanded. Because quantity demanded and income move in opposite directions, inferior goods have negative income elasticities.

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