The income elasticity of demand is a measure of the relationship between a change in the quantity demanded for a particular good and a change in real income. Income elasticity of demand is an economics term that refers to the sensitivity of the quantity demanded for a certain product in response to a change in consumer incomes. The formula for calculating income elasticity of demand is:
Income Elasticity of Demand = % change in quantity demanded / % change in income
For example, if the quantity demanded for a good increases for 15% in response to a 10%increase in income, the income elasticity of demand would be 15% / 10% = 1.5.The degree to which the quantity demanded for a good changes in response to a change in income depends on whether the good is a necessity or a luxury.