ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Income elasticity of demand describes the sensitivity to changes in consumer income relative to the amount of a good that consumers demand. Highly elastic goods will see their quantity demanded change rapidly with income changes, while inelastic goods will see the same quantity demanded even as income changes.

Detailed explanation-2: -The income effect describes how an increase in income can change the quantity of goods that consumers will demand. For so-called normal goods, as income rises so does the demand for them (and vice-versa). This is reflected in microeconomics via an upward shift in the downward-sloping demand curve.

Detailed explanation-3: -For most goods, there is a positive (direct) relationship between a consumer’s income and the amount of the good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will increase; when income falls, the demand for the product will decrease.

Detailed explanation-4: -The change in quantity demanded shows a change in how much of a product is purchased when the price of the product changes. The income effect means as prices drop, consumers are left with extra real income and are able to purchase more goods/services.

Detailed explanation-5: -The responsiveness of the quantity demanded to the change in income is called Income elasticity of demand while that to the price is called Price elasticity of demand.