How do I calculate income elasticity of demand?

How do I calculate income elasticity of demand?

To calculate income elasticity of demand, you can use the formula:

Income Elasticity = (% Change in Quantity Demanded) / (% Change in Income).

Do you have specific numbers you want to use?

Yes, if the quantity demanded increases from 100 to 120 when income rises from $50,000 to $60,000, how do I calculate it?

First, calculate the percentage change in quantity demanded:

% Change in Quantity Demanded = (120 - 100) / 100 * 100 = 20%.

Next, calculate the percentage change in income:

% Change in Income = (60,000 - 50,000) / 50,000 * 100 = 20%.

Now, plug these values into the formula:

Income Elasticity = 20% / 20% = 1.

This means the demand is unit elastic.

What does it mean if the income elasticity is greater than 1?

If the income elasticity is greater than 1, it indicates that the good is a luxury item. This means that as income increases, the quantity demanded increases at a faster rate.