We can say income elasticity as the change in demand of a commodity in respect to the change in consumer's income.
Now as a normal consumer, what would you do when you are backed up with purchasing power? You would be purchasing quality goods. And in the reverse situation as a customer you would cut down your preferences and purchase inferior goods.
This particular concept of Income elasticity is important for a firm to estimate - how the demand for its products will change.
Now for this economist use
%change in demand /%change in income
All the consumer goods are classified into some category .
What is the income elasticity for baked beans,bus, railway? NECESSITIES,here impact on expenditure is, less change in income.
How high is the income elasticity for fine wine? COMFORT GOODS, here the impact on expenditure, is almost change in income.
What about the elasticity for an antique, an executive plane, a painting?LUXURY, here more than increase in income.
In all these cases of normal goods income elasticity is positive.
But in case of INFERIOR GOODS it is negative i.e. Negative income effect which means when income rises you switch to superior quality good.
Now as a normal consumer, what would you do when you are backed up with purchasing power? You would be purchasing quality goods. And in the reverse situation as a customer you would cut down your preferences and purchase inferior goods.
This particular concept of Income elasticity is important for a firm to estimate - how the demand for its products will change.
Now for this economist use
%change in demand /%change in income
All the consumer goods are classified into some category .
What is the income elasticity for baked beans,bus, railway? NECESSITIES,here impact on expenditure is, less change in income.
How high is the income elasticity for fine wine? COMFORT GOODS, here the impact on expenditure, is almost change in income.
What about the elasticity for an antique, an executive plane, a painting?LUXURY, here more than increase in income.
In all these cases of normal goods income elasticity is positive.
But in case of INFERIOR GOODS it is negative i.e. Negative income effect which means when income rises you switch to superior quality good.
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