0/2
Income elasticity of demand
Income elasticity measures how demand responds when incomes change — the percentage change in quantity demanded divided by the percentage change in income.
Key ideas
- Normal goods have positive income elasticity: richer buyers want more.
- Luxury goods have elasticity above 1 — demand grows faster than income.
- Inferior goods have negative elasticity: demand falls as income rises.
Keep going
0 of 2 sections answered.