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Question
State with reasons whether you agree or disagree with the following statement.
The Income Elasticity of Demand is only positive.
The Income Elasticity of Demand is only positive.
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Solution
No, I do not agree with this statement. income Elasticity is of 5 types:
- High: When rise in income causes bigger increase in the quantity demanded. Ey>1
- Unitary: When the rise in income is proportionate to the increase in the quantity demanded. Ey=1
- Low: When the jump in income is less than proportionate than the increase in the quantity demanded. Ey<1
- Zero: When the quantity bought/demanded is the same even if income changes. Ey=0
- Negative: When the increase in income comes with a decrease in the quantity demanded. Ey<0
(Note: Out of these, High, Low, and Unitary Elasticity fall under Positive Elasticity as they are all greater than 0)
income Elasticity is of 5 types:
- High: When rise in income causes bigger increase in the quantity demanded. Ey>1
- Unitary: When the rise in income is proportionate to the increase in the quantity demanded. Ey=1
- Low: When the jump in income is less than proportionate than the increase in the quantity demanded. Ey<1
- Zero: When the quantity bought/demanded is the same even if income changes. Ey=0
- Negative: When the increase in income comes with a decrease in the quantity demanded. Ey<0
(Note: Out of these, High, Low, and Unitary Elasticity fall under Positive Elasticity as they are all greater than 0)
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