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
You might also like
Finance: Understanding Demand (GCSE)
Study Notes
Exchange Rates
Quizzes & Activities
Free-range egg market comes to the boil
2nd December 2016
Going nuts for Nutella
26th January 2018
A Prime Example of Price Elasticity of Demand
26th July 2022
PED in Action | Inflation Hits the Humble Cheeseburger
27th July 2022