Income Elasticity of Demand

Income elasticity of demand is a measure of how sensitive demand for a good or service is to changes in consumers’ income. An income elasticity of demand greater than one indicates that demand increases more than proportionally when income increases, while an income elasticity less than one indicates that demand increases proportionally less than income. Income elasticity of demand measures the responsiveness of demand for a good or service to changes in consumer income over some period of time. It is important to understand that income elasticity of demand gives an indication of how much consumer purchasing behaviour changes in response to changes in consumer income, but it does not necessarily reflect total demand for a good or service.