Question

What is the formula for the income elasticity of demand?

Short answer

The formula for the income elasticity of demand is$E=\frac{\%∆Q}{\%∆I}$.

Step-by-step solution

Step 1. Income elasticity of demand

The income elasticity of demand measures how much the quantity demanded changes in response to changes in income. It refers to the ratio of change in quantity demanded to change in income, both of which are expressed in percentages.

Step 2. Formula

As described below, the percentage change in quantity needed is divided by the percentage change in revenue.

$incomeelasticityofdemand=\frac{\%changeinquantitydemanded}{\%changeinincome}$

or

$E=\frac{\%∆Q}{\%∆I}$