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INCOME ELASTICITY OF DEMAND
BY,
MATHEW V JOSEPH
MBA
MARIAN
COLLEGE,KUTTIKANAM,KERALA
INCOME ELASTICITY OF
DEMAND
 The income elasticity of demand is
defined as the rate of change in the
quantity demanded of a good due to
changes in the income of the
consumer.
 It is the responsiveness of demand to
the change in income
 It is calculated as the percentage
change in demand to the percentage
change in income
 It measures the relationship between
a change in quantity demanded and a
change in income.
 The basic formula for calculating the
of income elasticity is:
Percentage change in demand
Percentage change in income
TYPES OF INCOME ELASTICITY OF
DEMAND
 Positive Income elasticity of demand
 Negative Income elasticity of demand
 Zero Income elasticity of demand
POSITIVE INCOME
ELASTICITY
 If the demand for a commodity
INCREASES with an INCREASES in
income, the demand is said to be
positive income elastic
Y
P
A
D
D
B S
O XQuantity Demanded
Income
NEGATIVE INCOME
ELASTICITY
 If the demand for a commodity
DECREASES with an INCREASES
in income, the demand is said to be
negative income elastic. The
income elasticity co-efficient in this
case is Ed<0
P
B
A
S
Total Revenue
Quantity Demanded (000s)
Income
When the change in income do not bring
about any changes in quantity demanded,
that is quantity demanded remains same,
it is said to be zero income elasticity.
Income elasticity co-efficient is
Ed = 0
ZERO INCOME ELASTICITY
Y
XO
D
D
Quantity Demanded
Income
FACTORS EFFECTING PRICE
ELASTICITY
• Nature of commodity
• Availability of substitutes good and
complement goods
• Price
• Number of Uses
• Habits
• Change in fashion

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Income elasticity of demand

  • 1. INCOME ELASTICITY OF DEMAND BY, MATHEW V JOSEPH MBA MARIAN COLLEGE,KUTTIKANAM,KERALA
  • 2. INCOME ELASTICITY OF DEMAND  The income elasticity of demand is defined as the rate of change in the quantity demanded of a good due to changes in the income of the consumer.  It is the responsiveness of demand to the change in income  It is calculated as the percentage change in demand to the percentage change in income
  • 3.  It measures the relationship between a change in quantity demanded and a change in income.  The basic formula for calculating the of income elasticity is: Percentage change in demand Percentage change in income
  • 4. TYPES OF INCOME ELASTICITY OF DEMAND  Positive Income elasticity of demand  Negative Income elasticity of demand  Zero Income elasticity of demand
  • 5. POSITIVE INCOME ELASTICITY  If the demand for a commodity INCREASES with an INCREASES in income, the demand is said to be positive income elastic
  • 6. Y P A D D B S O XQuantity Demanded Income
  • 7. NEGATIVE INCOME ELASTICITY  If the demand for a commodity DECREASES with an INCREASES in income, the demand is said to be negative income elastic. The income elasticity co-efficient in this case is Ed<0
  • 9. When the change in income do not bring about any changes in quantity demanded, that is quantity demanded remains same, it is said to be zero income elasticity. Income elasticity co-efficient is Ed = 0 ZERO INCOME ELASTICITY
  • 11. FACTORS EFFECTING PRICE ELASTICITY • Nature of commodity • Availability of substitutes good and complement goods • Price • Number of Uses • Habits • Change in fashion