Write a short note on the term Income Elasticity of Demand


Income elasticity of demand for a good (X) refers to the responsiveness of demand for X to a change in the income of the consumer. It is measured by the ratio:

(Proportionate Change in Demand for X) (Proportionate Change in Income of the Consumer)

Symbolically, it is = (AD/AY)/(Y/D), where Y denotes income of the consumer. It is noteworthy that sign of income elasticity of demand is associated with the nature of the good in question. If the good is a ‘normal’ one, the sign of income elasticity is positive. And if the good is an ‘inferior’ one, the sign of the elasticity is negative.

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