Income Elasticity

Income elasticity measures how the quantity demanded of a good or service changes as consumer income changes. If a product's income elasticity is greater than one, it is considered a luxury good, meaning demand increases significantly as income rises. If it's between zero and one, it's a necessity, indicating demand rises but not as dramatically. Negative income elasticity means the good is inferior, where demand decreases as income increases. Understanding this concept helps businesses and economists predict how sales might fluctuate with economic changes.