income elasticity of demand

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Proportionate change in the demand for a good in response to a change in income. It is reflected in how people change their consumption habits with changes in their income levels. In a growing economy (where income levels are rising) goods whose demand is highly income-dependent will sell more than the goods whose demand is not income-dependent. For example, demand for staple food items normally does not increase with higher income levels; but demand for gourmet food or restaurant food does increase as individual's income grows. Also called income sensitivity of demand, it is mathematically expressed as percent change in quantity demanded รท percent change in income.

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The income elasticity of demand was demonstrated in the USA in 2008 as consumers tightened and controlled their spending extensively.
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Many retail stores use the income elasticity of demand to help gauge how much product to order for holiday seasons because they know that if household income is on the rise, the potential for sales also increases proportionately.
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You should always know how the income elasticity of demand will have a long lasting effect on your product and business.
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