The concept of price elasticity of demand plays an important role in the functioning economies by having a significant contribution in the field of industry, trade, and commerce. For the producer, the elasticity of demand tells them how responsive the quantity demanded is to price changes. In economics, the income elasticity of demand is the responsiveness of the quantity demanded for a good to a change in consumer income.

Not only this, it helps organisations in analysing economic problems and making appropriate business decisions. For the consumer, it’s simply a fact about oneself. The concept of elasticity of demand is of considerable significance in various situations. Income elasticity of demand (YED) measures the degree of responsiveness of demand with respect to change in consumer income i.e.

All countries experience a business cycle where actual GDP moves up and down in a regular pattern causing booms and slowdowns or perhaps a recession. The figure, shows the importance of price elasticity of demand: ADVERTISEMENTS: Consumer’s income is one of the important determinants of demand for a product.
Determination of price policy: While fixing the price of this product, a businessman has to consider the elasticity of demand for the product. In this case, the income elasticity of demand is calculated as 12 ÷ 7 or about 1.7. It will create elasticity in the demand and the demand will eventually diminish with the increase in price. With economic development, income level goes up and so the demand.The income elasticity of demand is helpful in finding out the rise or fall in demand and the firm can take decision regarding quantity of production. Importance of income elasticity to firms Essay Sample. In other words, a moderate drop in income produces a greater drop in demand. “Income elasticity of demand means the ratio of the percentage change in the quantity demanded to the percentage in income”-Watson. income elasticity can be applied in the intersection of market demand and supply. The concept of elasticity is of great importance to businessmen. Income elasticity of demand might not really be all that useful to governments, however, because it focuses on changes in the quantity demanded for specific products, not for all products in general.

Income of the consumer is an important determining factor for demand of a commodity. The importance of elasticity of demand can be realised as follows: (1) Business Decisions: Change in price of a good brings about a change in the quantity demanded depending upon the value of elasticity of demand. The concept of income elasticity of demand has much importance; some of them are the following: 1. Ans: Measuring the income elasticity of demand is important for industries and business units as they can then forecast how the demand for their products may change in response to consumer incomes. The price elasticity refers to the degree of responsiveness of demand as a result of a change in price. The concept of price elasticity of demand plays an important role in the functioning economies by having a significant contribution in the field of industry, trade, and commerce. In case the demand' is inelastic, they are then in a position to charge higher price for a commodity.
The income elasticity of demand measures the relationship between a change in the quantity demanded for a particular good and a change in real income. For example, the demand […]

In the same recession, on the other hand, we might discover that the 7 percent drop in household income … Income elasticity of demand refers to the sensitivity of the quantity demanded for a certain good to a change in real income of consumers who buy this good, keeping all other things constant. Income is an important determinant of consumer demand, and YED shows precisely the extent to which changes in income lead to changes in demand. The Importance of Income Elasticity in Decision-Making. When the demand of a good is elastic, they increases sale by towering its price. The higher the income, the higher the demand of commodities and vice- versa when there is low incomes. Price elasticity of demand is a very important concept.

Keynes considered price elasticity of demand to be the most important contribution of Marshall. Normal goods. The importance of elasticity of demand maintained through rise in price is thus very appropriate in making the society free of abusive products, by adding specific taxes the government can well raise its price and can make it unaffordable. Income elasticity shows fluctuations in demand for goods or services as precipitated by changes in the purchasing power of consumers. The figure, shows the importance of price elasticity of demand: it is the ratio of percentage change in quantity demanded to the percentage change in income. more Understanding the Cross Elasticity of Demand The consumer’s preferences completely determine a good’s elasticity for them. ADVERTISEMENTS: Some important points from which you can realize the important of price elasticity of demand!

It highlights several strengths and weaknesses of the concept and provides case study evidence of the concept in practice as well as implementation advice. income elasticity can be applied in the intersection of market demand and supply. If a 10% increase in Mr. Smith's income causes him to buy 20% more bacon, Smith's income elasticity of demand for bacon is 20%/10% = 2.