Income Elasticity Of Demand Is Positive In Case Of Normal Goods

If the elasticity of demand is greater than 1 it is a luxury good or a superior good.

Income elasticity of demand is positive in case of normal goods. The income elasticity of demand is positive for normal goods. A zero income elasticity of demand occurs when an increase in income is not associated with a change in the demand of a good. If income elasticity of demand of a commodity is less than 1 it is a necessity good. Therefore also known as necessity goods.

Suppose consumer income increases by 10 percent and demand for vegetable increases by 4 percent. The income elasticity for standard necessities lies between 0 and 1. For normal necessities income elasticity of demand is positive but less than 1 and for inferior goods where the income elasticity of demand is negative then as income rises the share or proportion of their budget on these products will fall. That is when the consumers income increases the demand for these goods also increases.

A positive income elasticity of demand is associated with normal goods. This implies an income elasticity of 0 4. However normal goods can further be broken down into normal necessities and normal luxuries. Normal goods have positive yed.

Necessities have an income elasticity of demand of between 0 and 1. Normal necessities have a positive but low income elasticity compared to luxurious goods. For example a staple like rice or bread could be considered a necessity. Refers to a situation when the demand for a product increases with increase in consumer s income and decreases with decrease in consumer s income.

Normal goods have a positive income elasticity of demand so as consumers income increase there is an increase in quantity demand. Graphically an outward shift can be observed in the demand curve. These goods have a positive ratio of income elasticity.