Income Elasticity Of Demand Positive Or Negative

What does the sign positive versus negative of the income elasticity of demand tell us about the relationship between two goods ans the sign of the income elasticity of demand reveals whether a good is a normal good or an inferior good.

Income elasticity of demand positive or negative. For normal luxury goods income elasticity of demand exceeds 1 so as incomes rise the proportion of a consumer s income spent on that product will go up. Income elasticity of demand includes positive income elasticity negative income elasticity and zero income elasticity. Now the coefficient for measuring income elasticity is yed. Normal goods and luxuries.

The income elasticity of demand is positive for normal goods and negative for inferior goods page 140 4. A negative income elasticity of demand is associated with inferior goods. An increase in income will lead to a rise in demand. For normal necessities income elasticity of demand is positive but less than 1 and for inferior goods where the income elasticity of demand is negative then as income rises the share or proportion of their budget on these products will fall.

In such a case the millet would be inferior to wheat for the customer. The income elasticity of demand is negative for inferior goods also known as giffen goods. Negative income elasticity of demand is shown with the help of figure 13. The income elasticity of demand for a particular product can be negative or positive or even unresponsive.

Basically a negative income elasticity of demand is linked with inferior goods meaning rising incomes will lead to a drop in demand and may mean changes to luxury goods. A positive income elasticity of demand is associated with normal goods.