1. What is Income Elasticity of Demand?

Income elasticity of demand measures how much the quantity demanded of a good responds to a change in consumers' income. It shows the sensitivity of demand to income changes and helps classify goods as normal or inferior.

2. How Does the Calculator Work?

The calculator uses the income elasticity formula:

Where:

• %ΔQ — Percentage change in quantity demanded
• %ΔI — Percentage change in income

Explanation: The formula calculates the ratio of the percentage change in quantity demanded to the percentage change in income.

3. Interpreting the Results

Results Interpretation:

• Greater than 1 (Elastic): Luxury goods - demand changes more than income
• Between 0 and 1 (Inelastic): Necessities - demand changes less than income
• Less than 0 (Negative): Inferior goods - demand decreases as income rises

4. Using the Calculator

Tips: Enter both percentage changes as numbers (e.g., for 5%, enter 5). The calculator handles both positive and negative values.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between income and price elasticity?
A: Income elasticity measures response to income changes, while price elasticity measures response to price changes.

Q2: Can income elasticity be negative?
A: Yes, negative values indicate inferior goods where demand decreases as income rises.

Q3: What are some examples of goods with different elasticities?
A: Luxury cars (elastic >1), food (inelastic 0-1), instant noodles (inferior <0).

Q4: How is this useful for businesses?
A: Helps predict demand changes during economic growth/recession and plan production accordingly.

Q5: Does income elasticity change over time?
A: Yes, as goods transition from luxuries to necessities or as consumer preferences change.