Income Elasticity of Demand Samples for Students †MyAssignmenthelp.co

Question: Discuss about the Income Elasticity of Demand. Answer: Income elasticity of demand Income elasticity of demand signifies proportionate change in demand of good in response to the corresponding proportionate change in income (Fine, 2016). Both the change in income and change in demand is expressed in percentage term. Goods are said to be income elastic when quantity demanded of the good changes more than the changes in income. The measure of elasticity is greater than one. For luxury goods such as sports cars or expensive ornament, elasticity is greater than one. Demand is income inelastic when demand changes at a less proportion than change in income. The measure of elasticity here is less than one (Bernanke, Antonovics Frank, 2015). Necessary good such as staple food has relatively income inelastic demand. When demand changes by exactly same percentage as income then demand has unit elasticity with respect to income. There is no real life example of this kind of goods. References Bernanke, B., Antonovics, K., Frank, R. (2015).Principles of macroeconomics. McGraw-Hill Higher Education. Fine, B. (2016). Microeconomics.University of Chicago Press Economics Books.