Definition
- Income elasticity of demand
- The income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.
- Not to be confused with: Cross-price elasticity of demand
- The cross-price elasticity of demand is the percentage change in the quantity of good A demanded divided by the percentage change in the price of good B.
Test yourself
What is the difference between income elasticity of demand and cross-price elasticity of demand?
Income elasticity measures the response to income; cross-price elasticity measures the response to another good's price.