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Question
Define income elasticity of demand.
Solution 1
Income elasticity of demand is the degree to which the quantity requested of a commodity is responsive to variations in consumer income.
Solution 2
The income elasticity of demand is the ratio of percentage change in the quantity demanded of a commodity to a percentage change in the income of the consumer. It can be expressed as under:
Ey = `("Percentage change in quantity demanded")/("Percentage change in income")`
RELATED QUESTIONS
Give economic terms:
Degree of responsiveness of a change of quantity demanded of a good to a change in its price.
Statements that are related to cross elasticity of demand:
- Change in quantity demanded of one commodity due to a change in the price of other commodity
- It is a type of elasticity of demand.
- It is applicable to complementary goods and substitutes.
- It is expressed as Ey = % ΔQ / %ΔY
Identify & explain the concept from the given illustration.
At Amulya Café, the demand for tea increased by 5% due to a 10% rise in the price of coffee.
Assertion (A): A change in quantity demanded of one commodity due to a change in the price of other commodity is cross elasticity.
Reasoning (R): Changes in consumers income leads to a change in the quantity demanded.
Distinguish between:
Income Elasticity of Demand and Cross Elasticity of Demand
Assertion (A): A change in quantity demanded of one commodity due to a change in the price of other commodity is cross elasticity.
Reasoning (R): Changes in consumers income leads to a change in the quantity demanded.
Calculate elasticity of demand on the basis of the following data.
| Price (Rs.) | Quantity (Kg) |
| 10 | 20 |
| 20 | 15 |
- Calculate the elasticity of demand.
- Is the demand elastic or inelastic?
Assertion (A): A change in quantity demanded of one commodity due to a change in the price of other commodity is cross elasticity.
Reasoning (R): Changes in consumers income leads to a change in the quantity demanded.
What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is zero?
What will be the effect of 10 percent rise in price of a good on its demand if price elasticity of demand is −2?
