income elasticity of demand

 INCOME ELASTICITY OF DEMAND 

Income elasticity demand refers to the percentage change in quantity demanded due to the percentage change in income,  others factors being constant.

Therefore it is given as,
                  Ey = % change in quantity demanded 
                           % change in income

Symbolically,
                   Ey = %△Q
                            %△I

Where,

               △ = percentage change

               Q = Quantity demanded

                I  = income

 Example no 1

               % change in quantity demanded is 60%

               % change in income is 30%

Therefore,

               Ey = 60/30 = 2                                         

              This means the income elasticity of demand is elastic because changes in quantity demanded is more than changes in income.

Example no 2

               % change in quantity demanded is 20%

               % change in income is 50%

Therefore,

               Ey =20/50 = 0.4                   

               This means income elasticity is inelastic because a change in quantity demand is less than a change in income.