Income elasticity of demand measures the responsiveness of demand for a good or service when there is a change in the incomes.

The key word there is responsiveness, all of your elasticity definitions must include the word responsiveness.

In short, YeD tells us, when there is a change in incomes, measured by %, will demand for a particular good or service change by a bigger or smaller %?

​The formula for income elasticity of demand can be seen below.

Normal & Inferior Goods

YeD can be expressed as a positive or a negative number.  This is important as it gives us an idea of whether the good is a normal or inferior good. A description of each is detailed below

Normal Goods

• As incomes increase, quantity demanded of these goods falls. therefore...
• YeD value is positive​.
• Normal goods are goods we would typically buy more of as we see wage increases e.g. luxury ready meals.

Inferior Goods

• As incomes increase, quantity demanded of these goods falls. therefore...
• YeD value is negative. ​
• Inferior goods are good we would typically buy more of as we see wage decreases e.g. value ready meals.