Income Elasticity of Demand

Income Elasticity of Demand

A measure of the relationship between a change in income and a change in quantity of a good demanded:

Notes:

The degree to which a demand for a good changes with respect to a change in income depends on whether the good is a necessity or a luxury. The demand for necessities will increase with income, but at a slower rate. This is because consumers, instead of buying more of only the necessity, will want to use their increased income to buy more of a luxury. During a period of increasing income, demand for luxury products tends to increase at a higher rate than the demand for necessities.

See also: Demand, Economics, Elasticity, Equilibrium, Income, Price Elasticity of Demand, Pricing Power, Supply