Last updated on June 13th, 2020 at 08:31 pm
Income elasticity of demand : A persons demand for a good may change with hisher change in income. The income elasticity of demand is the ratio of percentage change quantity purchased per time to the percentage change in income. Thus,
Here, em = Income elasticity of demand
Example : Let a persons income changed to $1500 from $1000 and the person’s increase in the demand for X commodity is 5000 units from 2000 units. Thus,
Δm = $500 ΔQ = 3000 units
The income elasticity of demand,
Thus, the income elasticity is 3.