INCOME ELASTICITY OF DEMAND - 2.2

elasticity
measure of me
income
responsiveness of
U demand to
changes


Of Immelt direction
info on of change in income .




demand given calls )
in
change in income t the



size of the
change ( size of demand curve shifts)


SIGN OF TED YED quantity demanded =/ DQD
percentage
=
increase in .




YE D >O
( tue YED) % BY
percentage change in income


→
Indicates NORMAL GOOD

↳ → Qfmal Qmhal
demand & YE D DQ DQ_
→ -




change
=
income
YOO
in
X

is
directly proportional ( t, t)
a- =
Q → Q initial
-




Ay AY → Yfinal Y initial
1/00
-




-
X -




Y
YE D LO ( -
ve YED) Y →
Y initial
→
Indicates INFERIOR GOOD

→
demand &
change in income is
inversely
leftward shift ( inferior good )
proportional

(
Cin iv. ( iv. in )
,




relatively small
rightward
VALUE OF YE D ft ve values) P shift ( necessities ) relatively larger
,
rightward
-

← → shift
YED 21 : Necessities YED so OCYEDLI YED > I
( luxury / Service)
interior income income
→ INCOME INELASTIC DEMAND elastic
good inelastic
demand demand
% DY
produces
→
smaller normal normal
a
% AQD
good good


Dz DI 173 04
YE D > 1 : luxuries / Services
O Q
effect of for different YEDS
→ INCOME ELASTIC DEMAND increase in income

→
% DY produces a
large Yo DQD




classifications of Necessities & luxuries depends on income levels ; For food ,
TED IS O 8 -

in
poor countries

( 8% increase in
spending for food after 10% increase in
income and TED is 0.15 -
o -

20 in more
developed countries


( 5% 2% l
spending for food after 10% increase income )
for people with low incomes food
-



increase in :
-




in o even
,




& clothing can become luxuries