Income Elasticity of Demand

The percentage change in quantity demanded, given a 1% increase in income. A value greater than 1 indicates an income-elastic or income-sensitive product, one for which percentage change in quantity will grow by more than the percentage change in income; a figure less than 1 indicates an income-inelastic product. Income elasticity of demand is important information for a firm in terms of predicting how demand for its products will grow as per capita incomes rises or during a business cycle.