price & income elasticity + NLI goods

• definition of elasticity of demand ?

  The relationship between changes in demand, change in price and income is known as the elasticity of demand.
• definition of price elasticity ?

  measures the sensitivity of demand to a change in price. Price elasticity is always negative as the increase in price will lead to a fall in sales and,

  conversely, a reduction in price will lead to a rise in sales.
• calculation for price elasticity ?

  Formulae: percentage change in quantity demanded / percentage change in price
• price elastic ?

  a product for which a proportionate increase or decrease in price leafs to a proportionately greater increase or decrease in the quantity sold, i.e. its elasticity is greater than one.
• price inelastic

  condition where the demand or supply of a product is unresponsive to price changes
• definition and calc for income elasticity ?

  measures how sensitive demand is to a change in income.

  Income elasticity = Percentage change in quantity demanded/ percentage change in income
• normal goods

  Normal goods – as real incomes increase the demand for normal goods will also increase: positive income elasticity less than 1. Examples

  are matches, lemonade, newspapers.
• luxary goods

  Luxury goods – the demand for luxury goods will grow at a faster rate than the increase in real income that created the change in demand :positive income elasticity that is greater than 1.

  Examples are holidays abroad, health club membership, sports cars.
• inferior goods ?

  Inferior goods – these are cheap substitutes of products people prefer to buy when their income is reduced (such as value line baked beans):

  negative income elasticity.