Income Elasticity of Demand and its cases.

Income Elasticity of Demand:

It can be defined as the proportionate change in quantity demanded of the commodity to a given proportionate change in Income of the consumer.

Ei= proportionate change in quantity demanded / proportionate change in Income.

We can classify into five cases:

1) Zero Income Elasticity of Demand.

In this case the quantity purchased of a commodity will remain unchanged irrespective of the change in Income.  Ei=

2) Negative Income Elasticity of Demand.

In this case, when the money- income of the consumer increases the quantity demanded by the consumer decreases. For eg. Inferior goods  Ei<0

3) Unitary Income Elasticity of Demand.

In this case when the money- income of the consumer increases, the quantity demanded by the consumer increases by the same amount.  Ei = 1 For eg. Comfort goods.

4) Income Elasticity greater than unity.

When the consumer spends a larger proportion of his increased income on the commodity when he becomes richer. For eg. Luxuries. Ei>1

5) Income Elasticity of Demand less than unity: when the consumer spends less proportion of his income on the puchase of a commodity. For eg. Necessities.Ei<1