Income Elasticity Below 1

An increase in income will lead to a rise in demand.

Income elasticity below 1. If the elasticity of demand is greater than 1 it is a luxury good or a superior good. Normal necessities have an income elasticity of demand of between 0 and 1 for example if income increases by 10 and the demand for fresh fruit increases by 4 then the income elasticity is 0 4. The income elasticity of demand can be said as high if the proportionate change in quantity demanded is proportionately more than the increase in income. Luxury goods have a high income elasticity of demand such that demand for the goods increases more than the proportionate increase in income.

A rise in income will therefore result in a rise in demand for the good. Inferior goods often come up with a negative income. This implies an income elasticity of 0 4. The higher the income elasticity of demand for a specific product the more responsive it becomes the change in consumers income.

Suppose consumer income increases by 10 percent and demand for vegetable increases by 4 percent. The income elasticity of demand for a. Melon and jackfruit have the lowest income elasticities at 0 257 and 0 225 respectively. Types of income elasticity of demand.

Now we can measure the income elasticity of demand for different products by categorizing them as inferior goods and normal goods. The income elasticity for standard necessities lies between 0 and 1. Income elasticity less than unity e y 1 if the percentage change in quantity demanded for a commodity is less than percentage change in income of the consumer it is said to be income greater than unity. If income elasticity of demand of a commodity is less than 1 it is a necessity good.

When the consumer s income rises by 5 and the demand rises by 3 it is the case of income elasticity less than unity. Normal goods often have a positive income elasticity of demand meaning that their demand is directly proportional to income. A positive income elasticity of demand is associated with normal goods. Therefore it can be regarded as a positive income elasticity.

Among the imported fruits grape has the highest income elasticity of 0 961 while processed fruits have an elasticity of 0 918. Income elasticity of demand yed change in quantity demanded change in income. Therefore also known as necessity goods.