4.4 Other Demand Elasticities

A product’s price is not the only important variable determining the
quantity demanded for that product. Changes in income and changes in
the prices of other products also lead to changes in quantity demanded,
and elasticity is a useful concept in measuring their effects.

Income Elasticity of Demand

An important determinant of demand is the income of the customers. The
responsiveness of demand to changes in income is termed the income
elasticity of demand and is symbolized by

For most goods, an increase in income leads to an increase in quantity
demanded—their income elasticity is positive. These are called normal
goods For some goods, however, an increase in income leads to a
decrease in quantity demanded—their income elasticity is negative. These
are called inferior goods.

Normal Goods

The income elasticity of normal goods can be greater than one (elastic) or
less than one (inelastic), depending on whether the percentage change in

 ηY.

ηY =PercentagePercentagechangechangeinquantityinincomedemanded

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