Income Elasticity Of Demand

Question 1

= greater than 1

Answer 1

Inferior goods

The quantity of demand falls as incomes rise

Question 2

0-1

Answer 2

Normal goods

Demand increases BUT at a slower rate than the increase in income - known as necessaries

Question 3

> 1

Answer 3

Luxury goods

Demand increase at a faster rate than the increase in income

Question 4

How do you calculate income elasticity of demand?

Answer 4

Original income divide by original quantity x change in quantity dived change in income