income elasticity of demand

Definition

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 ÷ percent change in income.