What is income elasticity of demand?
An example of an AI chatbot conversation about income elasticity of demand.
What is income elasticity of demand?
Income elasticity of demand measures how the quantity demanded of a good changes as consumer income changes.
Can you give me an example of a product with high income elasticity?
Sure! Luxury goods, like designer handbags, often have high income elasticity because demand increases significantly as income rises.
What about necessities? Do they have low income elasticity?
Yes, necessities like bread or basic clothing typically have low income elasticity, meaning demand doesn't change much with income fluctuations.
How is income elasticity calculated?
It's calculated by dividing the percentage change in quantity demanded by the percentage change in income.
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