मांग की आय लोच एवं मांग की तिरछी लोच| Income elasticity of demand | Cross elasticity of demand

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In economics, the income elasticity of demand is the responsiveness of the quantity demanded for a good to a change in consumer income. It is measured as the ratio of the percentage change in quantity demanded to the percentage change in income. If a 10% increase in Mr. Ruskin Smith 5.2 income causes him to buy 20% more bacon, Smith's income elasticity of demand for bacon is 20%/10% = 2.

Interpretation

Inferior goods' demand QX falls as consumer income I increases.
A negative income elasticity of demand is associated with inferior goods; an increase in income will lead to a fall in the demand and may lead to changes to more luxurious substitutes.
A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
A zero income elasticity of demand occurs when an increase in income is not associated with a change in the demand of a good.
Income elasticity of demand can be used as an indicator of future consumption patterns and as a guide to firms' investment decisions. For example, the "selected income elasticities" below suggest that an increasing portion of consumers' budgets will be devoted to purchasing automobiles and restaurant meals and a smaller share to tobacco and margarine.[1]

Income elasticities are closely related to the population income distribution and the fraction of the product's sales attributable to buyers from different income brackets. Specifically, when a buyer in a certain income bracket experiences an income increase, their purchase of a product changes to match that of individuals in their new income bracket. If the income share elasticity is defined as the negative percentage change in individuals given a percentage increase in income bracken the income-elasticity, after some computation, becomes the expected value of the income-share elasticity with respect to the income distribution of purchasers of the product. When the income distribution is described by a gamma distribution, the income elasticity is proportional to the percentage difference between the average income of the product's buyers and the average income of the population

Types of income elasticity of demand
There are five possible income demand curves:[citation needed]

High income elasticity of demand:
In this case, increase in income is accompanied by relatively larger increase in quantity demanded.

Unitary income elasticity of demand:
In this case, increase in income is accompanied by same proportionate increase in quantity demanded.

Low income elasticity of demand:
In this case, increase in income is accompanied by less than proportionate increase in quantity demanded.

Zero income elasticity of demand:
This shows that quantity bought is constant regardless of changes in income.

Negative income elasticity of demand:
In this case, increase in income is accompanied by decrease in quantity demanded.

Types of Income Elasticity of Demand
There are five types of income elasticity of demand:

High: A rise in income comes with bigger increases in the quantity demanded.
Unitary: The rise in income is proportionate to the increase in the quantity demanded.
Low: A jump in income is less than proportionate than the increase in the quantity demanded.
Zero: The quantity bought/demanded is the same even if income changes
Negative: An increase in income comes with a decrease in the quantity demanded.
Interpretation of Income Elasticity of Demand
Depending on the values of the income elasticity of demand, goods can be broadly categorized as inferior goods and normal goods. Normal goods have a positive income elasticity of demand; as incomes rise, more goods are demanded at each price level.

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