Income Elasticity of Demand

Income elasticity of demand refers to the sensitivity of demand for a good or service to changes in income. It is typically measured as the ratio of the percentage change in demand to the percentage change in income. Income elasticity of demand is used to measure the effect of changes in income on the demand for a good. It provides information about whether a good is normal (positively responsive to changes in income) or inferior (negatively responsive to changes in income). Generally, normal goods have an income elasticity of demand greater than one, while inferior goods have an income elasticity of demand less than one.