When incomes rise, people buy more restaurant meals and travel (luxuries), slightly more groceries (necessities), and less instant noodles or bus travel (inferior goods).
How to use the Income Elasticity of Demand Calculator
- Initial income
- Final income
- Initial quantity demanded
- Final quantity demanded
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the initial and final income and the initial and final quantity demanded.
Tips
- Use consistent periods (a year or a quarter) for flow figures and period-end values for balances.
- Average opening and closing balances when a ratio mixes a flow with a stock.
- Benchmark against competitors in the same industry.
- Read the ratio together with others – profitability, liquidity and efficiency tell different stories.
Common mistakes to avoid
- Using sales instead of cost of goods sold for inventory ratios.
- Mixing gross, operating and net profit.
- Ignoring one-off items that distort a single year.
Inputs explained
| Field | What to enter |
|---|---|
| Initial income | Amount in your currency |
| Final income | Amount in your currency |
| Initial quantity demanded | A number |
| Final quantity demanded | A number |
What each result means
- Percentage change in quantity (midpoint) = ([Final quantity demanded] – [Initial quantity demanded])÷(([Final quantity demanded] + [Initial quantity demanded])÷2)×100
- Percentage change in price/income (midpoint) = ([Final income] – [Initial income])÷(([Final income] + [Initial income])÷2)×100
- Income elasticity of demand = [Percentage change in quantity (midpoint)]÷[Percentage change in price÷income (midpoint)]
Example values
How the main result changes when Initial income changes and everything else stays at the example values above:
| Initial income | Income elasticity of demand |
|---|---|
| 25,000 | 0.186 |
| 37,500 | 0.369 |
| 50,000 | 1.465 |
| 62,500 | -1.093 |
| 75,000 | -0.453 |
| 100,000 | -0.24 |
Formula
Income elasticity = % change in quantity demanded ÷ % change in incomeMidpoint % change = (new − old) ÷ ((new + old) ÷ 2)> 1 luxury; 0–1 necessity; < 0 inferiorWorked example
Inputs — Initial income: $50,000; Final income: $55,000; Initial quantity demanded: 100; Final quantity demanded: 115.
Results — Percentage change in quantity (midpoint) = 13.95 %; Percentage change in price/income (midpoint) = 9.52 %; Income elasticity of demand = 1.465; Type of good = Luxury (normal) good.
Frequently asked questions
What is income elasticity of demand?
The responsiveness of demand to changes in income.
What is an inferior good?
One whose demand falls as income rises.
What income elasticity does a luxury good have?
Greater than 1.
What formula does the Income Elasticity of Demand Calculator use?
Income elasticity = % change in quantity demanded ÷ % change in income.