Question

What is the formula for the income elasticity of demand?

Short answer

Income elasticity of demand is the ratio of % change in quantity demanded upon the % change in income.

Step-by-step solution

Step 1. Definition:

The percentage variation in quantity required divided by the percentage variation in income is the income elasticity of demand.

Step 2. Formula:

The elasticity of demand is also dependent on the level of income. The formula required to compute the income elasticity of demand is given below:

$\mathrm{Income}\mathrm{elasticity}\mathrm{of}\mathrm{demand}=\frac{\%\mathrm{change}\mathrm{in}\mathrm{quantity}\mathrm{demanded}}{\%\mathrm{change}\mathrm{in}\mathrm{income}}$