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
