Income Elasticity For Inferior Goods

This means the demand for a normal good will increase as the consumer s income increases.

Income elasticity for inferior goods. For an inferior good that is when the income elasticity of demand is negative a higher level of income would cause the demand curve for that good to shift to the left. Inferior goods are called inferior because they usually have superior alternatives. Inferior goods are associated with a negative income elasticity while normal goods are related to a positive income elasticity. We use income elasticity to categorize goods as inferior or normal goods.

Again how much it shifts depends on how large the negative income elasticity is. Yed inferior goods are characterised by low quality and are goods with better alternatives. An inferior good has a negative income elasticity of demand. Inferior goods have a negative income elasticity.

An inferior good has an income elasticity of demand 0. Income elasticity of demand ie change in demand quantity change in income. Basically a negative income elasticity of demand is linked with inferior goods meaning rising incomes will lead to a drop in demand and may mean changes to luxury goods. The mathematical formula is as follows.

Typically inferior goods or services exist where superior goods are available if the consumer has the money to be able to buy it. The yed of blackpool holidays is 0 2. Inferior goods have a negative income elasticity of demand meaning that demand falls as income rises. Income elasticity of demand for an inferior good.

For example if average incomes rise 10 and demand for holidays in blackpool falls 2. When income rises people can afford to forego the cheap alternative and buy the higher. It s important to note that the term inferior good refers to its. Income elasticity is a measure of the responsiveness of the demand quantity in response to changes in income.

An inferior good occurs when an increase in income causes a fall in demand. A holiday in blackpool is an inferior good. A normal good has an income elasticity of demand 0. That is yed is less than 0.

Income elasticity of demand for a normal good.