Income Elasticity Homework Help

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Income elasticity is the percentage change of supply/demand in ratio with the percentage change of income. Put it simply, if there is a 10% percentage increase of income then the percentage of supply/demand increases to 20%, by calculating the ratio of these percentages i.e. 20%/10% you will get “2” which will be the income elasticity. It is a core concept of economics and is widely used for understanding future consumption patterns of industry, industry health and accurate investment decisions. Basically, income elasticity is associated to the distribution of population income and the fraction of different goods that are brought to the buyers through various income brackets.

When a specific buyer gets an increase in their income then they tend to purchase products, so as to match up to the present income bracket. Thus, income elasticity can be defined as the percentage difference between average income of the population and the average income of product buyers.

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