Micro: Unit 1 Ch 6 INCOME ELASTICITY

Elasticity

Income Elasticity of Demand

measures how sensitive the quantity demanded of a good is to changes in income

Equation for Income Elasticity

E_i = % change in quantity demanded / % change in income

New - Old / Old

Income Elasticity Midpoint Formula

E = (Q₂ - Q₁ )/[ (Q₂ + Q₁ )/2 ] / [(P₂ - P₁ )/[ (P₂ + P₁ )/2 ]

Income elasticity is positive for…

Normal Goods

relationship between income and prices for normal goods

If income increases, demand increases

If income decreases, demand decreases

Income elasticity is negative for…

inferior goods

The relationship between income and demand for inferior goods

If income goes up, demand goes down

If income goes down, demand goes up