Interpretation of the Income Elasticity Coefficient (E<sub>y</sub>)
Interpretation of the Income Elasticity Coefficient \((E_y)\)
a) Superior Good:
This is seen when the income elasticity of demand coefficient is positive and greater than 1, meaning that as income increases by a given percentage, the percentage of demand for the good will increase more than that of income.
b) Normal Good:
This is seen when the income elasticity of demand coefficient is positive but less than or equal to 1, meaning that as income increases by a given percentage, the demand for the good will increase but less than the given percentage increase in income.
c) Inferior Good:
A good is described as inferior when its income elasticity of demand coefficient is negative, meaning that less will be demanded as income rises.
d) Necessity Good:
A necessity good is one whose income elasticity of demand coefficient is 0 (neutral number), meaning that the demand for the good is insensitive to changes in income.
This lesson is part of:
Theory of Demand