The responsiveness of changes in quantity demanded to a change in income.
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Income elasticity formula
percentage change in quantity demanded divided by percentage change in income
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Normal goods
Increased demand when income rises, decreased demand when income falls. Coefficient is positive.
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Inferior goods
Decreased demand when income rises, increased demand when income falls. Coefficient is therefore negative.
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Normal necessities
Income inelastic. Less than 1 but greater than 0, still a positive number. A percentage change in income will have a less than proportionate change in demand.
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Normal luxuries
Income elastic. Greater than 1, a change in income leads to a more proportionate change in demand.
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Other cards in this set
Card 2
Front
percentage change in quantity demanded divided by percentage change in income
Back
Income elasticity formula
Card 3
Front
Increased demand when income rises, decreased demand when income falls. Coefficient is positive.
Back
Card 4
Front
Decreased demand when income rises, increased demand when income falls. Coefficient is therefore negative.
Back
Card 5
Front
Income inelastic. Less than 1 but greater than 0, still a positive number. A percentage change in income will have a less than proportionate change in demand.
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