The Concept Of Income Elasticity And Income Elasticity Of Demand

Question 2

The concept of the elasticity is to measure of the responsiveness of the demand and supply of a goods and services to whether the increase or decrease in the price. It is also is a measure of how much the buyers and sellers respond to change in market conditions. Conceptualize of elasticity is to see the response of supply and demand to other economic changes as the elasticity of supply and demand. The elasticity very important because it is help companies to maximize their profit and make decide whether can or not particular market to be profitable. Besides that, companies need to find them to use price elasticity to realities for the marketing reasons. Companies in this situation will probably have the regular and massive sales. For example, shoes shops realize that the market, when consumer are buying the quality product in lower price they feel very happy because they think it’s discounted.

Two type of elasticity is income elasticity of demand and cross price elasticity of demand. First, income elasticity of demand means to measure of how much the quantity of the demand of a good response to a change in consumer income. The formula to calculate of the income elasticity of demand is the percentage change in quantity demanded divide by the percentages

When rise the income usually also rise in demand, because when rise the income employees, then they have the enough money to buy the goods so the quantity of demand also will increases but for the some goods demand will fall. When the income and quantity are changes in same direction then the figure for the Yed is positive and is the normal goods. A normal good is one where demand is directly proportional to income. For example, if following the increases from 40,000 pound to 50,000 pound, an individual are buys the 40 DVD firms per years, instead 20, then the coefficient