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INCOME ELASTICITY OF DEMAND (YED/ ey )

INCOME ELASTICITY OF DEMAND (YED/ ey ). PRESENTED BY: SUMIT SINGH. “INCOME ELASTICITY OF DEMAND” (EYD or e y ). “It is the Degree of responsiveness of quantity demanded of a commodity to change in the real income of the buyer”. ey = % change in quantity demanded

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INCOME ELASTICITY OF DEMAND (YED/ ey )

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  1. INCOME ELASTICITY OF DEMAND (YED/ ey) PRESENTED BY: SUMIT SINGH

  2. “INCOME ELASTICITY OF DEMAND” (EYD or ey) “It is the Degree of responsiveness of quantity demanded of a commodity to change in the real income of the buyer”. ey = % change in quantity demanded % change in income ey = % ∆Q = ∆q/q = ∆q x y % ∆Y ∆Y/Y ∆Y q

  3. DEGREES OF ey ey 1. (ey>0) 2. (ey=0) 3. (ey<0) (positive ey) (zero ey) (negative ey)

  4. POSITIVE INCOME ELASTICITY (ey>0) (ey>0) (it is related to normal gods) (ey>1) (ey<1) (positive but greater then 1) (positive but less than 1) Luxury goods comfort goods D’ Y Y y2 D’ y2 y1 D y1 D 0 q1 q2 X 0 q1 q2 X

  5. ZERO INCOME ELASTICITY (eY=0) (ey=0) Y (neutral goods) y3 y2 y1 0 q X

  6. NEGATIVE INCOME ELASTICITY(ey=0) (ey<0) ( Inferior goods ) Y D’ y2 y1 D 0 q2 q1 X

  7. Income elasticity plays a significant role in developing marketing strategies Of firm producing products with high income elasticity. These firms will Located in those area where incomes are increasing rapidly . To ensure High growth of sale , the firm will direct the advertising campaigns to those Segments of people whose income is high & also is increasing rapidly.

  8. Calculation of ey: Q: If Qx = 1000 + 0.04 Y , where Y = 10000 find ey ? Sol. We know that ey = ∆q/∆y * y/q here Qx = 1000 + 0.04 * 10000 = 1000 + 400 = 1400 and when Qx = 1000 + 0.04 Y then dq/dy = 0.04 (using power function rule) Then , ey = 0.04 * 10000/ 1400 = 0.29 (approx.) Therefore , it is positive income elasticity of demand and goods are comforts goods.

  9. THANK YOU

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