Income elasticity of demand

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Income elasticity of demand is the percentage change in quantity of a good demanded divided by the percentage change in average income. It tells how the demand for a good reacts to changes in the average income. Normal goods have a positive income elasticity, while inferior goods have a negative income elasticity.

Among goods with positive income elasticity, Necessities and more essential goods have the level of elasticity at less than 1, while luxury goods have very large elasticity.