Difference between revisions of "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 good]]s have a positive income elasticity, while [[inferior good]]s have a negative income elasticity. | '''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 good]]s have a positive income elasticity, while [[inferior good]]s have a negative income elasticity. | ||
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| + | 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. | ||
[[Category:Economics]] | [[Category:Economics]] | ||
Latest revision as of 07:03, February 9, 2013
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.