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It is measured as the percentage change in demand that occurs in response to a percentage change in income. For example, if, in response to a 10% increase in income, the quantity of a good demanded increased by 20%, the income elasticity of demand would be 20%/10% = 2. (Case & Fair, 1999: 119). A negative income elasticity of demand is associated with Inferior Good s; an increase in income will lead to a fall in the quantity demanded and may lead to changes to more luxurious substitutes. A positive income elasticity of demand is associated with Normal Good s; an increase in income will lead to a rise in the quantity demanded. A high positive income elasticity of demand is associated with Luxury Good s. A zero income elasticity of demand is an increase in income without leading to a change in the quantity demanded of a good. Many is known as Engel's Law . MATHEMATICAL DEFINITION This concept can be more formally explained by the relationship OR where: : = income : = quantity SEE ALSO REFERENCES
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