Income Elasticity of Demand


Also found in: Acronyms, Wikipedia.

Income Elasticity of Demand

A measure of whether a good is considered a necessity or a luxury. It is measured as a ratio of the change in demand for a good to the change in consumer income. Demand for a necessity tends to change slowly with changes in income; that is, as consumers become wealthier, they do not necessarily buy more of a necessity because they already have all they need. On the other hand, demand for luxury increases quickly with increases in income, as consumers buy more of a luxury when they become wealthier.
References in periodicals archive ?
Differences in the income elasticity of demand for the products that serve the different needs should express this differential satiation effect.
As a result, any estimation of aggregate demand to arrive at measures of a representative consumer's income elasticity of demand and price-elasticity demand is essentially an empty exercise because the restrictions (values) placed on the income elasticity and price elasticity are presupposed prior to any estimation.
27 weighted average Source: Romero (2007) Table 2 Natural Gas Income Elasticity of Demand Summary Low High Residential & Commercial -0.
The higher income elasticity of demand for vitamin A during the post-harvest season (0.
The income coefficient corresponds to an income elasticity of demand for season ticket packages of 2.
One might think that this calculation is too simple and that this estimated income elasticity of demand for leisure time too high.
However, without a better alternative measure, income elasticity of WTP has been used as a proxy for income elasticity of demand in many studies including Kristom and Riera (1996) and Pereyra and Rossi (1999).
Consistent usage would require that the income elasticity of demand be defined as the responsiveness of the change in demand to a change in income in percentage terms.
We have examined ourselves (Pacheco-Lopez and Thirlwall, 2006) the direct effect of trade liberalisation on the income elasticity of demand for imports in 17 Latin American countries over the period 1977 to 2002 using a simplified version of equation (2):
The positive sign of the income elasticity of demand indicates that electricity is a normal good.
This expression indicates that a country's reserves grow faster (through a balance of payments surplus) the lower its initial reserve ratio; the faster the growth of total world reserves, the higher its income elasticity of demand for money and its real growth rate relative to other countries, and the lower its international reserve ratio and rate of domestic credit expansion relative to other countries.