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What are Factors Affecting Income Elasticity of Demand?

Here we understand the factors affecting income elasticity of demand.

What are Factors Affecting Income Elasticity of Demand?
First, we will understand the Meaning of Income Elasticity of Demand.
 Meaning of Income Elasticity of Demand:
It is a measure of responsiveness of demand to a change in the income of the consumer. It is indicated as Ey where e = elasticity, y = income.
Now, Discuss factors affecting income elasticity of demand in detail.
  1. The most important factor influencing income elasticity of demand is the level of income itself. At very high levels of income, elasticity is likely to be low. Professor Lipsey pointed out, an initial increase in the income of a poor family is more likely to be spent than saved. The demand for certain essentials will increase more than proportionately with the increase in the income of a poor household. But, as income goes on increasing, the elasticity which is positive will go on diminishing. It may become zero and even negative at a very high level of income.
  2. Mostly, the income elasticity of demand for cars, refrigerators etc. is high, whereas the same for low priced necessaries like salt, matches, or cheap food is low.
  3. If a very small portion of the income of the family is spent on the given commodity, the income elasticity of demand for it would be low. Converse, the income elasticity of demand would be high for the commodities on which a significant portion of the family's income is spent.
  4. In most cases, such commodities happend to be 'inferior goods' for the family, the income elasticity may turn out to be 'negative.'
  5. It depends on Nature of the good, 
  6. Inferior goods have negative income elasticity
  7. Normal goods have positive income elasticity.
Factors affecting income elasticity of demand
Nature of a good
inferior goods have negative income elasticity
Income Elasticity of Demand- Factors affecting income elasticity of demand.
Kinnari
Tech writer at NewsandStory
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