1.2.5 income elasticity of demand

Question 1

income elasticity of demand definition

Answer 1

the responsiveness of demand to a change in income

Question 2

income elasticity of demand equation

Answer 2

      % change in income

Question 3

income inelastic demand definition

Answer 3

where the percentage change in demand is proportionately LESS than the percentage change in income

Question 4

income elastic demand definition

Answer 4

where the percentage change in demand for a product is proportionately GREATER than the percentage change in income

Question 5

income inelastic demand

Answer 5

• products with an income elasticity of less than 1

- in the case of these products, the percentage change in demand is less than the percentage change in income.

Question 6

income elastic demand

Answer 6

• products with an income elasticity of greater than 1.

- for these products the change in demand is proportionately greater than the change in income.

Question 7

inferior goods definition

Answer 7

have a negative elasticity, which means that demand falls when income rises and demand rises when income falls. e.g. supermarket own brands

Question 8

normal goods definition

Answer 8

have a positive income elasticity that is less than one, which means that demand rises when income rises, but at a slower rate than the increase in income. this means the good is not a necessity such as food but it is a relative luxury for the individual.

Question 9

luxury goods definition

Answer 9

have a positive income elasticity which is more than one, meaning demand for these goods grows faster than the increase in income
e.g. a foreign holiday

Question 10

factors influencing income elasticity of demand:

Answer 10

• luxury or necessity
• proportion of income
• the attractiveness of the product