What is Income Elasticity of Demand?

• What is Income Elasticity of Demand?:

  • Income Elasticity measure the responsiveness of demand to changes in income.  ​
• % change in quantity demanded / % change in income = YED
• If YED = 1 then demand is unitary elastic.
• If YED = 0 then demand is perfectly inelastic.
• If YED = -1 then demand is perfectly elastic.
• If YED < 1 then demand is inelastic.
• If YED > 1 then demand is elastic.
• If YED < 0 then demand is inferior good.
• The quantity demanded of a normal good rises with income.
• Income elasticity of demand is always negative for an inferior good and positive for a normal good.
• Income elasticity of demand is always negative for an inferior good and positive for a normal good.
• As incomes increases there is a proportionally larger increase in demand for normal goods
• As incomes increases there is a proportionally larger increase in demand for normal goods
• During a recession demand for an inferior good increase as peoples incomes decrease
• During a recession demand for an inferior good rises as peoples incomes decrease