Economics Elasticity Of Demand Questions Medium
Income elasticity of demand is a measure that quantifies the responsiveness of the quantity demanded of a good or service to changes in income levels. It is calculated by dividing the percentage change in quantity demanded by the percentage change in income.
The income elasticity of demand can be positive, negative, or zero. A positive income elasticity indicates that the good is a normal good, meaning that as income increases, the demand for the good also increases. A negative income elasticity indicates that the good is an inferior good, meaning that as income increases, the demand for the good decreases. A zero income elasticity indicates that the good is income inelastic, meaning that changes in income have no significant impact on the demand for the good.
The income elasticity of demand is an important concept in economics as it helps to understand how changes in income levels affect consumer behavior and demand patterns. It is particularly useful for businesses and policymakers in predicting the impact of economic growth or recession on the demand for different goods and services.