Income Elasticity of Demand

The responsiveness of buyers to changes in their incomes is measured by income elasticity. While EP measures a movement along a demand function as the price changes, income elasticity (EM) measure a shift of the demand function caused by a change in income.

Income elasticity (EM) is defined:

Point elasticity of demand:

Arc elasticity of demand:

1. E < 0 means the good is inferior, i.e. for an increase in income the quantity purchased will decline or for a decrease in income the quantity purchased will increase.

2. 1 > Ε > 0 means the good is a normal good, for an increase in income the quantity purchased will increase but by a smaller percentage than the percentage change in income.

3. For E > 1 the good is considered a superior good.

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