Factors Affecting: Income Elasticity Of Demand
Economics notes
Factors Affecting: Income Elasticity Of Demand
➡️ Income elasticity of demand is the measure of how much the demand for a good or service changes when there is a change in the income of the consumer.
➡️ It is important to understand the income elasticity of demand as it helps to determine the pricing of goods and services.
➡️ Income elasticity of demand can be either positive, negative, or unitary.
➡️ Factors that affect income elasticity of demand include the availability of substitutes, the necessity of the good or service, and the income level of the consumer.
➡️ Income elasticity of demand can be used to predict how changes in income will affect the demand for a good or service.
What are the main factors that affect the income elasticity of demand?
The main factors that affect the income elasticity of demand are the availability of substitutes, the necessity of the good or service, the proportion of income spent on the good or service, and the availability of credit.
How does the availability of substitutes affect the income elasticity of demand?
The availability of substitutes affects the income elasticity of demand by providing consumers with alternative options to purchase goods or services. If there are more substitutes available, then the income elasticity of demand will be higher as consumers have more options to choose from.
How does the necessity of a good or service affect the income elasticity of demand?
The necessity of a good or service affects the income elasticity of demand by determining how much of a consumer�s income is spent on the good or service. Necessities such as food and shelter have a higher income elasticity of demand than luxury items, as consumers are more likely to spend a larger proportion of their income on necessities.