Income Elasticity of Demand Flashcards

Study Notes

Income Elasticity of Demand

Measures the percentage change in quantity demanded resulting from a percentage change in income.

Types of Goods

Positive Elasticity (+ ve): Indicates a normal good; demand rises as income increases.
Positive Elasticity and Greater than One (+ ve and >1): Defines a luxury good; demand rises significantly (more than proportionately) with income increases.
Negative Elasticity (- ve): Identifies an inferior good; demand decreases as income increases.

Definitions of Goods

Normal Good: Demand increases with rising income; consumption pattern aligns with increased purchasing power.
Luxury Good: Demand experiences robust growth when consumer income rises; often perceived as non-essential or premium items.
Inferior Good: Demand declines when consumer income rises; typically substituted with higher-quality alternatives.

Examples of Goods

Inferior Goods: Cheap clothing, supermarket brands, rice, and potatoes exemplify products whose demand diminishes as wealth increases.
Luxury Goods: High-end brands like Prada, Gucci, and vehicles like Ferrari and Porsche represent products with demand that escalates with income boosts.
Normal Goods: Items such as iPhones, new TVs, radios, and new clothes indicate products whose demand grows alongside consumer income.

Description

Explore key concepts of income elasticity of demand through these flashcards. Understand how changes in income affect the demand for different types of goods, including normal, luxury, and inferior goods. Perfect for economics students looking to solidify their understanding of demand elasticity.