Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsDemand3 Marks
Question
Explain income elasticity of demand.
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Answer
Meaning:
Income elasticity of demand is useful to measure changes in the demand for a commodity with respect to changes in the income of a consumer.
The extent (degree) of change in demand for a good because of a change in income of the consumer is called income elasticity of demand. It is denoted by $\varepsilon_y$.
Income elasticity $\left(\varepsilon_y\right)$=$\frac{Proportionate change in demand}{Proportionate change in price}$
Types/degrees of income elasticity of demand:
$1.$ Positive income elastic demand:
There are three degrees of in positive income elasticity of demand. They are:
$(A)$ Unit income elastic demand $\left(\varepsilon_y=1\right)$
$(B)$ Elasticity of demand greater than unity $\left(\varepsilon_y>1\right)$
$(C)$ Elasticity of demand less than unity $\left(\varepsilon_y<1\right)$
$2.$ Negative income elastic demand
$3.$ Zero income elastic demand
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