Different Kinds Of Income Elasticity Of Demand

Positive income elasticity of demand e y 0 if there is direct relationship between income of the consumer and demand for the commodity then income elasticity will be positive.

Different kinds of income elasticity of demand. It is assumed that the consumer s income tastes and prices of all other goods are steady. It is measured as a percentage change in the quantity demanded divided by the percentage change in price. Implies that positive income elasticity of demand would be unitary when the proportionate change in the quantity demanded is equal to proportionate change in income. Therefore it can be regarded as a positive income elasticity.

In perfectly elastic demand a small rise in price results in fall in demand to zero while a small fall in price causes increase in demand to infinity. Income elasticity of demand. Necessities have an income elasticity of demand of between 0 and 1. For example if income increases by 50 and demand also rises by 50 then the demand would be called as unitary income elasticity of demand.

Types of income elasticity of demand 1. Cross elasticity of demand the elasticity in relation to the change of the price of other good and services income elasticity of demand. Normal goods have a positive income elasticity of demand so as consumers income increase there is an increase in quantity demand. Unitary income elasticity an increase in income is proportional to the rise in the quantity demanded.

Hence the degree of responsiveness of a change in demand for a product due to the change in the income is known as income elasticity of demand. The income is the other factor that influences the demand for a product. According to the source of the change the following types of elasticity of demand can be mentioned. That is if the quantity demanded for a commodity increases with the rise in income of the consumer and vice versa it is said to be positive income elasticity of demand.

The price elasticity of demand is the response of the quantity demanded to change in the price of a commodity. In such a case the demand is perfectly elastic or e. As the income of consumer increases they consume more of superior luxurious goods. Unitary income elasticity of demand.

High income elasticity a rise in income is followed by even more significant increases in the quantity demanded. Low income elasticity a rise in income is less than the increase in the quantity demanded. Different types of income elasticity of demand. When a small change in price of a product causes a major change in its demand it is said to be perfectly elastic demand.

Let us discuss the different types of price elasticity of demand as shown in figure 1. As a result his quantity demanded is increased by 50. We can categorize income elasticity of demand into 5 different categories depending on the value.