Friday, April 23, 2010

Measuring income elasticity at a point on an income demand curve

The effect of income on demand fro a commodity,other things remaining constant is called income demand.The curve that shows the quantity demanded of a commodity at different levels of income is called income demand curve of Engel.This curve shows that demanded is the function of income.
The consumers buy some commodities like food on equal quantity.In this situation the income demand curve is almost vertical.If the people increase the purchase of the commodity more rapidly than the increase in income,the income demand curve is almost horizontal such as ornaments.
In general,people demand more of a commodity when income increase.Hence,the income demand curve slopes upward to the right or has positive slope.This happens in case of normal goods.If the quantity demanded falls with increase in income,the income demand curve has negative slop.This happens in case of inferior goods.The income effect is negative.
The measurement of the income demanded curve having positive slope has been presented in the figure below.Measuring income elasticity at a point on an income demand curve

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