quantity demanded is greater or less than the percentage change in
income that brought it about.
Income Inelastic
If income elasticity is positive but less than one, we say the demand for
this good is income inelastic. Suppose average annual income in Canada
rises from $47 500 to $52 500, an increase (calculated at the average value
of $50 000) of 10 percent. Suppose also that this increase in income leads
to an increase in quantity demanded of snow shovels, from 784 000 to
816 000, an increase (calculated at the average value of 800 000) of 4
percent. The income elasticity of demand for snow shovels is therefore
Income Elastic
If income elasticity is positive and greater than one, we say the demand
for this good is income elastic. Suppose the same 10 percent increase in
average income leads to an increase in the quantity demanded of
snowboards from 510 000 to 690 000, an increase (calculated at the
average value of 600 000) of 30 percent. The income elasticity of demand
for snowboards is therefore
Luxuries Versus Necessities
ηY = 104 %% =0.4ηY =^3010 %% = 3