Business

Income Elasticity and Price Elasticity of Demand measurement

Income Elasticity and Price Elasticity of Demand measurement

Income Elasticity of Demand and Price Elasticity of Demand measurement

Income elasticity of demand: Income elasticity of demand is a measure of the relationship between a change in the quantity demanded a particular good and a change in real income. Income elasticity of demand is an economics term that refers to the sensitivity of the quantity demanded a certain product in response to a change in consumer incomes. It refers to the sensitivity of the quantity demanded a certain good to a change in real income of consumers who buy this good, keeping all other things constant. The formula for calculating income elasticity of demand is:

[Income Elasticity of demand = (% change in quantity demanded / % change in income)]

It shows how the quantity demanded changes when consumer’s income changes.

Price elasticity of demand: Price elasticity of demand is a measure of the relationship between changes in the quantity demanded of a particular good and a change in its price. It is defined as the degree of responsiveness quantity demanded of a commodity in response to change in the price of that commodity. Price elasticity of demand is a term in economics often used when discussing price sensitivity. The formula for calculating the price elasticity of demand is:

[Income Elasticity of demand = (% change in quantity demanded / % change in price)]

It shows how the quantity demanded of good changes when the price of that good changes.