Income Elasticity Of Demand Zero

Income elasticity of demand includes positive income elasticity negative income elasticity and zero income elasticity.

Income elasticity of demand zero. For example suppose the income of mr a is increased by 20. The income elasticity of demand is zero e y 0 in case of essential goods. 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. On the above figure in initial stage price is oi and quantity of demand is oq when income increase to i1and decreases.

A zero income elasticity of demand occurs when an increase in income is not associated with a change in the demand of a good. For example salt is demanded in same quantity by a high income and a low income individual. We can explain it on the basis of following figure. As a result his quantity demanded is increased by 50.

Good a is a normal good or non inferior good with positive income elasticity of demand 0 e m 1 d a curve. In case of basic necessary goods such as salt kerosene electricity etc. Demand is rising less than proportionately to income. Refers to the income elasticity of demand whose numerical value is zero.

If there is no any change in quantity of demand due to certain percentage change in income then it is known as zero income elasticity of demand. One may also call such normal good as a necessary good. Zero income elasticity of demand e y 0 if the quantity demanded for a commodity remains constant with any rise or fall in income of the consumer and it is said to be zero income elasticity of demand. Zero income elasticity of demand for a good implies that a given increase in income does not at all lead to any increase in quantity demanded of a good or expenditure on it.

Income elasticity of demand can be used as an indicator of future consumption patterns and as a guide to firms investment decisions. In other words zero income elasticity signifies that quantity demanded of the good is quite unresponsive to changes in income. This is because there is no effect of increase in consumer s income on the demand of product. Therefore it can be regarded as a positive income elasticity.

A normal good or a non inferior good is one whose coefficient of income elasticity is positive but less than one. 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.