Income Elasticity Of Demand Is Negative

A positive income elasticity of demand is associated with normal goods.

Income elasticity of demand is negative. A few examples are cigarettes local label foods etc. On the above figure x and y axis represent demand for inferior goods and income respectively. For example if the income of a consumer increases he would prefer to purchase wheat instead of millet. Inferior goods have a negative income elasticity of demand meaning that demand falls as income rises.

Now the coefficient for measuring income elasticity is yed. These are the goods with negative income elasticity of demand. Typically inferior goods or services exist where superior goods are available if the consumer has the money to be able to buy it. The income elasticity of demand for a product can elastic or inelastic based on its category whether it is an inferior good or a normal good.

Elasticity of demand is the change in quantity of good demanded per unit change in price. That is if the quantity demanded for a commodity decreases with the rise in income of the consumer and vice versa it is said to be negative income elasticity of demand. Now most of the times elasticity if negative because most of the goods are normal goods or ordinary goods which mean that if price increases demand decreases and vice versa. These are the goods with income elasticity more significant than one.

In such a case the millet would be inferior to wheat for the customer. The income elasticity of demand for a particular product can be negative or positive or even unresponsive. If there is negative relationship between income and demand in this case income elasticity is negative. An increase in income will lead to a rise in demand.

The income elasticity is negative particularly for inferior goods as well as for giffen goods. Normal goods and luxuries. This means if consumer income increases demand falls. The income elasticity of demand is negative for inferior goods also known as giffen goods.

If consumer income rises they buy fewer goods. A negative income elasticity of demand is associated with inferior goods. 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. In this case inferior goods income elasticity is negative.

For example if the income of a consumer is increased he would prefer to purchase wheat instead of millet. It refers to the situation where an increase in income leads to a fall in quantity demanded.