2. ``Money that is earned
from doing work or
received from
investments``
(http://dictionary.cambridge.org/dictionary/british/income)
Searching words: what is Income ?
What is Income ?
3. In economics, elasticity is the
measurement of how responsive an
economic variable is to a change in
another.
Searching words: what is Elasticity ?
http://en.wikipedia.org/wiki/Elasticity_%28economics%29
What is Elasticity ?
4. The responsiveness of demand to the change
in the consumer`s income is
known as income elasticity.
What is Income Elasticity ?
Reference: Microeconomics
By: D.N.Dwivedi
Publisher: Pearson Education
5. If, in response to a 10%
increase in income, the
demand for a good
increased by 20%, the
income elasticity of demand
would be 20%/10% = 2.
EXAMPLE
6. High income elasticity of demand:
In this case increase in income is
accompanied by relatively larger increase in
quantity demanded. Here the value of
coefficient Ey is greater than unity (Ey>1).
Types of income elasticity of
demand
7. Unitary income elasticity of demand:
In this case increase in income is accompanied by
same proportionate increase in quantity
demanded. Here the value of coefficient Ey is equal
to unity (Ey=1).
Low income elasticity of demand:
In this case proportionate increase in income is
accompanied by less than increase in quantity
demanded. Here the value of coefficient Ey is less
than unity (Ey<1).
8. Zero income elasticity of demand:
This shows that quantity bought is constant
regardless of changes in income. Here the value
of coefficient Ey is equal to zero (Ey=0).
Negative income elasticity of demand:
In this case increase in income is accompanied
by decrease in quantity demanded. Here the
value of coefficient Ey is less than
zero/negative (Ey<0).
Reference:
Searching words: income elasticity of
demand
http://en.wikipedia.org/wiki/Income_elasticity_of_demand
9. Products whose demand varies directly with
money income are called superior or normal
goods.
Products whose demand varies inversely with
money income are called superior or normal
goods.
Normal & Inferior Goods
Reference:
Economics written by Campbell R. McConell
Page # 87,88
