Economics Online Tutor
INCOME ELASTICITY OF
DEMAND
INCOME ELASTICITY OF DEMAND MEASURES THE
RESPONSIVENESS OF THE QUANTITY DEMANDED TO A
CHANGE IN INCOME.  THE FORMULA FOR THE INCOME
ELASTICITY OF DEMAND IS:


INCOME ELASTICITY OF DEMAND = THE
PERCENTAGE CHANGE IN THE QUANTITY
DEMANDED DIVIDED BY THE PERCENTAGE
CHANGE IN INCOME



A NORMAL GOOD WOULD HAVE AN INCOME ELASTICITY
OF DEMAND THAT IS GREATER THAN ZERO (POSITIVE
NUMBER).

AN INFERIOR GOOD WOULD HAVE AN INCOME
ELASTICITY OF DEMAND THAT IS LESS THAN ZERO.

FOR NORMAL GOODS, A NECESSITY WOULD HAVE A
RELATIVELY LOW INCOME ELASTICITY OF DEMAND
WHILE A LUXURY WOULD HAVE A RELATIVELY HIGH
INCOME ELASTICITY OF DEMAND.