Economics Supply And Demand Questions Medium
The difference between a positive income elasticity and a negative income elasticity lies in the relationship between changes in income and changes in demand for a particular good or service.
Positive income elasticity refers to a situation where an increase in income leads to an increase in the demand for a good or service. In other words, as income rises, people are willing and able to purchase more of the good or service. This is often observed for normal goods, which are goods for which demand increases as income increases. For example, luxury goods like high-end cars or vacations tend to have positive income elasticity, as people are more likely to purchase them when they have higher incomes.
On the other hand, negative income elasticity occurs when an increase in income leads to a decrease in the demand for a good or service. In this case, as income rises, people actually buy less of the good or service. Negative income elasticity is typically associated with inferior goods, which are goods for which demand decreases as income increases. For instance, low-quality or generic products may have negative income elasticity, as consumers may switch to higher-quality alternatives when they can afford them.
In summary, positive income elasticity indicates that demand for a good or service increases as income increases, while negative income elasticity suggests that demand decreases as income rises. These concepts are important in understanding how changes in income affect consumer behavior and market dynamics.