What is the correct equation for the income elasticity of demand (Ye)?
A)Ye = percentage change in demand for good 1/percentage change in demand for good 2
B)Ye = percentage change in demand for good 1/percentage change in price for good 2
C)Ye = percentage change in quantity demanded/percentage change in income
D)Ye = percentage change in income/percentage change in quantity demanded

Question

Quizplus · Accepted Answer

The correct equation for the income elasticity of demand is Ye = percentage change in quantity demanded divided by the percentage change in income.
Key Takeaway: The income elasticity of demand is used to help producers of a good know how much the demand for a particular good will change in response to the income of consumers. To determine this, producers divide the percentage of the change in quantity demanded by the percentage change in consumer income. With normal goods, the income elasticity will always be positive. It will generally be negative for inferior goods.

What Is the Correct Equation for the Income Elasticity of Demand