Types of Income Elasticity of Demand

TYPES OF INCOME ELASTICITY OF DEMAND

i.  Positive and elastic inco me demanded: The value of the coefficient E is greater than unity ,

which means that quantity demanded of good X increases b y a larger percentage than the income of the consumer. This is explained with the help of a diagram.

X axis -quantity demanded

Y axis -Income

DD- demand curve

Explanation: The curve Ey shows a positive and elastic income demanded. In the case of necessities, the coefficient of income of income elasticity is positive but low, Ey=1. Income elasticity of demanded is low when the demand for a commodity rises less than proportionate to the rise in the income.

ii.     Positive but inelastic income demand: It is low if the relative change in quantity demanded is less tha n the relative change in mone y income. Ey<1. This is explained with the help of a diagram.

X axis -quantity demanded

Y axis -Income

DD- demand curve

Explanation: The curve Ey shows a positive but in elastic income demand. In the case o f necessities, the coefficient of income elasticity is positive but low, Ey<1. Income elasticity of demand is low when the demand for a commodity rises less than proportionate to the rises less than proportionate to the rise income.

iii.Unitary inco me elasticity of demand: The p ercentage change in quantity demanded is equal to the percentage change in money income. This is explained with the help of a diagram.

X axis -quantity demanded

Y axis -Income

DD- demand curve

Explanation: The curve Ey shows unitary income elastic ity of demand. In the case of comforts, the coefficient of income elasticity is unity (Ey=1) when the demand for a commodity rises in the same proportions as the increases in income.

iV. Zero income elasticity: A change in income will have no effect on the quantity demanded. The value of the coefficient Ey is equal to zero. This is explained with the help of a diagram.

X axis -quantity demanded

Y axis -Income

DD- demand curve

Explanation: The curve shows a vertical income, elasticity demand curve Ey with zero elasticity

If with the increases in income, the quantity demanded remains unchanged the coefficient of income elasticity, Ey=0.

v. Infe rior goods: Inferior goods have negative income elasticity of demand. It explains that less is bought at higher inco mes and more is bought at lower incomes. The value of the coefficient Ey is less than zero or negative in this case. This is explained with the help of a diagram.

X axis -quantity demanded Y axis -Income

DD- demand curve

Explanation: The coefficient of income elasticity of demand in the case of inferior goods is negative. In the case o f an inferior good, the consumer will reduce his purchases of it, when his income increases.