[This is part of the series: The Complete Guide To Economics 101.]
What is the income elasticity of demand?
Income Elasticity of Demand is a measure of how sensitive quantity demanded is to a change in income.
Income Elasticity of Demand, for example, asks the question:
If income increased or decreased by X%, what would be the impact on quantity demanded?
It is essentially a measure of how sensitive consumers are to changes in income.
For instance, monthly spending on food might be less sensitive to changes in income, and monthly spending on entertainment might be more sensitive to changes in income.
(Income Elasticity of Demand) = (% change in quantity demanded) / (% change in income)