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| | === Income Elasticity === | | === Income Elasticity === |
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| − | ''''Income''''' elasticity of demand is the change in the quantity demanded by the public for a particular good due to a change in '''''income'''''. Stated another way, income elasticity is the responsiveness in demand for a good due to a change in the buyers' income. Its symbol is "Yed", because "Y" is a symbol for income, and "ed" refers to "elasticity of demand." | + | '''''Income''''' elasticity of demand is the change in the quantity demanded by the public for a particular good due to a change in '''''income'''''. Stated another way, income elasticity is the responsiveness in demand for a good due to a change in the buyers' income. Its symbol is "Yed", because "Y" is a symbol for income, and "ed" refers to "elasticity of demand." |
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| | In calculating elasticity, the numerator is the same for both price and income elasticity: it is the percent change in quantity demanded for the good. But the denominator is different for these two elasticities: the denominator for price elasticity is the percent change in price of the good, while the denominator for income elasticity is the percent change in income for the buyers. | | In calculating elasticity, the numerator is the same for both price and income elasticity: it is the percent change in quantity demanded for the good. But the denominator is different for these two elasticities: the denominator for price elasticity is the percent change in price of the good, while the denominator for income elasticity is the percent change in income for the buyers. |
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| | Unlike price elasticity, income elasticity can be either positive or negative, depending on the good. For a "normal" good, income elasticity is positive; for an "inferior" good, it is negative. Inferior goods are rare: they see a decrease in demand when income by the public increases. Usually demand for goods increase as income by the public increases, hence the name "normal good" for them. | | Unlike price elasticity, income elasticity can be either positive or negative, depending on the good. For a "normal" good, income elasticity is positive; for an "inferior" good, it is negative. Inferior goods are rare: they see a decrease in demand when income by the public increases. Usually demand for goods increase as income by the public increases, hence the name "normal good" for them. |
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| − | The mistake on Lecture Three question 4 by your teacher was when he described "necessary" and "luxury" goods in terms of '''''price''''' elasticity rather than '''''income''''' elasticity. A "necessary" good is one <more> | + | The mistake on Lecture Three question 4 by your teacher was when he described "necessity" and "luxury" goods in terms of '''''price''''' elasticity rather than '''''income''''' elasticity. A "necessity" good is one <more> |
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| | The same cutoff of unit 1 separates "elastic" from "inelastic" goods with respect to income elasticity: | | The same cutoff of unit 1 separates "elastic" from "inelastic" goods with respect to income elasticity: |