Income Elasticity of Demand

Income elasticity of demand ($E_i$) measures the responsiveness of quantity demanded to a change in the consumer's income, prices remaining constant:

The sign and size of $E_i$ classify goods:

• $E_i < 0$ (negative) — an inferior good: quantity demanded falls as income rises (e.g., consumers switch away from a coarse cereal as they grow richer).
• $0 < E_i < 1$ — a necessity: demand rises with income, but proportionately less (income-inelastic).
• $E_i > 1$ — a luxury / superior good: demand rises proportionately more than income. …