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. |