Income elasticity of demand
Income elasticity of demand measures the responsiveness of demand to changes in income:
Demand and income
Demand for a good will usually be
affected by the income of the people buying it.
One would assume that the demand for a good will increase as income of
consumers increases. However, this is
not always the case, so it is important to distinguish those cases when the
demand does increase from those when the demand does not increase.
A normal good is one when an increase in income leads to an increase in demand.
However, an inferior good is one where an increase in income leads to a fall in demand.
Examples of inferior goods are (a) bread (b) public transport.
A normal good is one when an increase in income leads to an increase in demand.
However, an inferior good is one where an increase in income leads to a fall in demand.
Examples of inferior goods are (a) bread (b) public transport.