Ads end in 20 seconds
This content is free thanks to our sponsors
Sponsored Ad – I may earn a commission if you click and buy
Economics
Income Elasticity of Demand
How much the demand for something changes when people's incomes go up or down.
Luxury goods have high income elasticity. Necessities have low. Economists use this number to predict how industries will grow as the country gets richer.It's like measuring how much more ice cream your friends buy when their allowance doubles — some buy way more, others barely change.
Real world: When incomes rise, people buy more restaurant meals and vacations (high income elasticity) but almost the same amount of salt or toilet paper (low income elasticity).
💡 Income elasticity tells businesses what to sell when the economy is booming — focus on things people want more of when they have extra cash.