AP MicroeconomicsElasticity
Income Elasticity of Demand
Income elasticity of demand measures how responsive the quantity demanded is to a change in consumers' income.
It is calculated as the percentage change in quantity demanded divided by the percentage change in income. Demand is considered a normal good if the ratio is positive, meaning demand increases as income increases. Demand is considered an inferior good if the ratio is negative.
Formula / Example
Income Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Income)
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