Income Elasticity of Demand

Income elasticity of demand measures the responsiveness of quantity demanded to a change in consumer income.

E_i = \frac{\%\text{ change in quantity demanded}} {\%\text{ change in income}}

Types of Goods

Income elasticity is negative. When consumer income increases, quantity demanded decreases.

Income elasticity is positive.

Normal goods can be divided into:

Necessities
$0 < E_i < 1$ . Quantity demanded increases by a smaller percentage.
Luxuries
$E_i > 1$ . Quantity demanded increases by a larger percentage.

Income rises from 1,000 to 2,000 and quantity demanded rises from 10 to 20. Find the income elasticity of demand.

Solution Reveal Hide

\%\Delta Y = +100\%, \quad \%\Delta Q = +100\%

E_i = \frac{100\%}{100\%} = 1

The good is a normal good with unitary income elasticity.

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November 1, 2026 1 min read

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