Income elasticity of demand
Definition. Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in consumer income, calculated as the percentage change in quantity demanded divided by the percentage change in income. Its sign and size reveal how demand for a good varies as incomes rise.
A positive value indicates a normal good, a negative value indicates an inferior good, and a value greater than one indicates a luxury whose demand is highly sensitive to income.
This term belongs to Income and Cross Elasticity of Demand in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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