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Income Elasticity Formula

Author: Kate Eskra

Income Elasticity

Source: Image of Income Elasticity Graph for Normal Good created Kate Eskra, Image of Income Elasticity Graph for Luxury Good created by Kate Eskra, Image of Income Elasticity Graph for Inferior Good created by Kate Eskra

Video Transcript
Terms to Know
Income Elasticity

An economic measure of change in relation to income and demand for normal, inferior and luxury goods. 

Inferior Goods

Goods for which demand decreases as income increases.

Luxury Goods

A good that offers better quality and features which is consumed when income rises.

Normal Goods

Goods for which demand increases as income increases.

Formulas to Know
Income Elasticity

E equals fraction numerator bevelled fraction numerator open parentheses Q subscript A minus Q subscript B close parentheses over denominator open parentheses Q subscript A plus Q subscript B close parentheses end fraction over denominator bevelled fraction numerator open parentheses I subscript A minus I subscript B close parentheses over denominator open parentheses I subscript A plus I subscript B close parentheses end fraction end fraction