Economics Supply And Demand Questions Medium
Price elasticity of demand and income elasticity of demand are both measures used in economics to understand the responsiveness of demand to changes in price and income, respectively. However, they differ in terms of what they measure and the factors they consider.
Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It calculates the percentage change in quantity demanded divided by the percentage change in price. This elasticity value helps determine whether a good is elastic (responsive to price changes), inelastic (not very responsive to price changes), or unitary elastic (quantity demanded changes proportionally to price changes). Price elasticity of demand considers only the impact of price changes on demand and does not take into account changes in income.
On the other hand, income elasticity of demand measures the responsiveness of quantity demanded to changes in income. It calculates the percentage change in quantity demanded divided by the percentage change in income. This elasticity value helps determine whether a good is a normal good (demand increases with an increase in income), an inferior good (demand decreases with an increase in income), or a luxury good (demand increases at a greater rate than income). Income elasticity of demand focuses solely on the impact of changes in income on demand and does not consider changes in price.
In summary, the main difference between price elasticity of demand and income elasticity of demand lies in what they measure. Price elasticity of demand measures the responsiveness of quantity demanded to changes in price, while income elasticity of demand measures the responsiveness of quantity demanded to changes in income.