Income elasticity of demand is dependent on changes in the demand of purchasing power.This indicator considers the impact on the sales of a particular good.
Income elasticity of demand can be in several forms:
- Negative - involves reducing demand by increasing income.At the same time there is an inverse relationship between the amount of purchases and wages.
- Positive - shows that an increase in income growth in demand occurs.
- Zero - suggests that the wage growth does not change the volume of sales.
to the negative form of elasticity include substandard goods, the positive - almost all normal goods, including luxury.Zero flexibility are essential goods (clothing, food, etc.).
Income elasticity of demand determines the percentage may change the demand with the increase (decrease) in income customers by 1%.In different countries, wage growth encourages people to buy products at different levels.For example, in countries with advanced economies, the demand for luxury goods.In developing countries, consumers tend to stock up on durable goods.Studies have also shown that the elasticity of demand depends on the average income in the state.For example, sales of basic products is high at a low salary.But with an increase in income share of expenses for food begins to decline.
Price elasticity of demand and income also depends on the social group.So, people with low salaries most of it spent on such foods as potatoes, bread, milk, that is of essential commodities.For this group, these benefits are very important, and sometimes even a luxury.People with more income to spend a lot of meat, fish, fruit, vegetables.For them, potatoes and bread - these are ordinary goods that they can easily buy every day.The next layer of the population is even higher incomes, so they can spend on a variety of quality products, such as exotic fruits, traveling abroad, purchase of equipment, etc.For them, potatoes and bread - are products of a lower order.
Studies have confirmed that the large share of the population spends income on food, the lower being.Now in Russia for more than 70% of the population simply can not meet their basic needs for goods.And a huge number of people living below the poverty line.
factor income elasticity of demand for most commodities is positive.This means that with an increase in wages people are starting to buy more normal goods.Thus they acquire inferior products sometimes fewer.Thus, for potatoes, milk and bread elasticity coefficient is negative.
on income elasticity of demand is influenced by several factors:
- The importance of good family.If a product has an important place in the diet, the elasticity of his small.
- Is the benefit of a necessity or a luxury.Thus, bread has a lower elasticity than the machine.
- Conservatism demand.Consumers typically do not immediately switch to more expensive goods.People accustomed to save, some time will be mechanically limit yourself and only then start to buy better clothes and food.
Government of each country shall strive to ensure that the income of the population is constantly increasing, but it should not be associated with high rates of inflation.Then the people's living standards greatly improved.They will be able to buy good quality and expensive, and will not be worried about the future and constantly save.
