tutor2u | Income Elasticity of Demand

Study Notes

Income Elasticity of Demand

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, IB

Last updated 22 Mar 2021

Income elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in income.

The formula for calculating IED is shown below

For most normal products

  • A rise in consumer income will result in a rise in demand
  • A fall in consumer income will result in a fall in demand

Extent of the change (elasticity)

  • This will vary depending on the type of product (e.g. luxury v necessity)

Looking further at this distinction between luxuries and necessities:

Watch out too for inferior goods. These have an income elasticity of less than one.

For inferior goods, as income rises demand actually falls. Why does demand fall?

  • Consumers switch to better alternatives
  • Substitute products become affordable

Recommended

Exam support for 2022

Online Grade Booster Courses for A-Level Exams in May & June 2022

Exam technique, advance information support, live revision and more from the tutor2u subject specialist teams

Enrol now

© 2002-2022 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.