Types of Income Elasticity of Demand
Here we learn about the types of Income Elasticity of Demand in detailed.
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Types of Income Elasticity of Demand?
Now we will discuss the types of Income elasticity of demand one by one in detail as follows:
- Ey > 1 : When the proportionate change in demand is greater than proportionate change in income, income elasticity is more than unity means elastic in nature. This is the case with luxury goods.
- Ey < 1 : When the proportionate change in demand is less than proportionate change in income, income elasticity is less than unity means inelastic in nature. This is the case with basic necessities.
- Ey = 1 : When the proportionate change in demand is equal to the proportionate change in income, income elasticity is equal to unity.
- Ey = 0 : When there is no change in demand in response to change in income, income elasticity is zero means perfectly inelastic in nature.
- Ey is negative : When an increase in income of the buyer brings about reduction in demand for the commodity, income elasticity is negative. This is the case with inferior goods.
As shown in above figure, here in the income range OA, Ey = 0; in the income range AB, Ey is positive; in the income range BC, Ey = 0 and beyond the income range OC, Ey is negative. It may be seen in the figure that upto income level OA, demand is zero and increase in income does not make any impact on demand. As the income increases beyond OA and upto OB, demand rises with income. Note that income elasticity is not the same, although it is positive. It may be more than one, less than one or equal to one.
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Types of Income Elasticity of Demand
Perfectly income elastic demand
Perfectly income inelastic demand
Relatively income elastic demand
Relatively income inelastic demand
Unitary income elastic demand
Income Elasticity of Demand- Types of Income Elasticity of Demand.
Kinnari
Tech writer at NewsandStory