Mathematical Definition
More formally, the income elasticity of demand, for a given Marshallian demand function for a good is
or alternatively:
This can be rewritten in the form:
With income, and vector of prices .
Many necessities have an income elasticity of demand between zero and one: expenditure on these goods may increase with income, but not as fast as income does, so the proportion of expenditure on these goods falls as income rises. This observation for food is known as Engel's law.
Read more about this topic: Income Elasticity Of Demand
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