the cost of production, as well as price. We can measure elasticity for any determinant of quantity supplied and

quantity demanded, not just the price.

Income Elasticity of Demand

The income elasticity of demand is the percentage change in quantity demanded divided by the percentage
change in income.

For most products, most of the time, the income elasticity of demand is positive: that is, a rise in income will

cause an increase in the quantity demanded. This pattern is common enough that we refer to these goods as

normal goods. However, for a few goods, an increase in income means that one might purchase less of the

good. For example, those with a higher income might buy fewer hamburgers, because they are buying more

steak instead, or those with a higher income might buy less cheap wine and more imported beer. When the

income elasticity of demand is negative, we call the good an inferior good.
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