Income Elasticity of Demand


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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.
This article serves as a cautionary warning to researchers (including this author) who empirically estimate aggregate lottery-demand functions, as it raises questions about the interpretation of previous results and conclusions regarding the distributional burden of lottery-ticket expenditures (i.e., income elasticity of demand), the substitutability or complementarity of lottery games, and the welfare implications of statelottery financed public expenditures.
And because by definition the income elasticity of demand for a good is the ratio of the percent change in the amount demanded to the percent change in income, the estimated income elasticity of demand for leisure time over those 24 years is 30.5/37.7 [approximately equal to] 0.81, which is strongly positive.
Irrigated production of crops in temperate regions is dominated by "commodity crops" such as corn, alfalfa, cotton, and rice that have an elastic market demand, and a negligible or negative income elasticity of demand. In contrast, the revenue from irrigated agricultural production in California and other arid areas is dominated by "middle class crops" such as fruits, nuts, and vegetables which have inelastic price and income elasticities of demand that are positive and quite significant.
It has long been argued that environmental quality is a luxury good, with an income elasticity of demand greater than one (Kristom and Riera, 1996).
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.
The coefficient for [g.sub.Y] is [e.sub.Y], the income elasticity of demand for money.
Three types of income elasticity are computed from the two-part model: income elasticity of participation, income elasticity of consumption and total income elasticity of demand. The income elasticity of participation is computed by using the average of the partial derivatives from the Probit model, and represents the percentage change in the smoking participation at the personal level caused by 1 percent change in disposable income.