1. What is Income Elasticity of Demand?

Income Elasticity of Demand (IED) measures how much the quantity demanded of a good responds to a change in consumers' income. It shows the sensitivity of demand for a product to changes in income.

2. How Does the Calculator Work?

The calculator uses the Income Elasticity of Demand formula:

Where:

• \( \%\ \Delta Q \) — Percentage change in quantity demanded
• \( \%\ \Delta Income \) — Percentage change in income

Explanation: The formula calculates the ratio of the percentage change in quantity demanded to the percentage change in income.

3. Interpretation of Results

Details:

• IED > 1: Luxury good (demand changes more than income)
• 0 < IED ≤ 1: Normal good (demand changes less than income)
• IED < 0: Inferior good (demand decreases as income rises)

4. Using the Calculator

Tips: Enter percentage changes as numbers (e.g., for 5%, enter 5). Both values must be valid (denominator cannot be zero).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between income elasticity and price elasticity?
A: Income elasticity measures response to income changes, while price elasticity measures response to price changes.

Q2: Can IED be negative?
A: Yes, negative IED indicates an inferior good where demand decreases as income rises.

Q3: What are examples of goods with different IED values?
A: Luxury cars (IED > 1), groceries (0 < IED < 1), instant noodles (IED < 0).

Q4: How is this useful for businesses?
A: Helps predict demand changes during economic expansions/recessions and plan production accordingly.

Q5: Does IED remain constant?
A: No, it can vary at different income levels and for different market segments.