Question

What is meant by income elasticity of demand? Discuss any three uses of elasticity of demand.

Answer 1

Income elasticity of demand measures the ratio of the proportionate change in quantity demand of the commodity to the proportionate change in income of the consumer.

Three uses of elasticity of demand:

1) It helps government to formulate taxation policies.

2) Demand for industrial firms can be determined.

3) It helps to classify normal goods and inferior goods.