Income Elasticity Of Demand

Categories: Finance,

Income elasticity of demandreflects the change of the demand for a certain good to a change in the incomeof the people who want to buy that good, in case the price is unchanged. It ispresented as the ratio of the percentage change in demand to the percentagechange in income. In case of  normal goodsa rise in income will lead to a rise in demand, that means a positive incomeelasticity of demand. If the income elasticity of demand is negative, anincrease in income will cause a drop in the demand, because people will buymore expensive goods.