Question

what is income elasticity of demand amd how is it measured ? how does income elasticity of demand tell you whether a good is inferior or normal ? give examples

Answer 1

Income elasticity of demand means how the quantity demanded of a good responds to a change in income. It is measured by dividing the percentage change in quantity demanded by percentage change in income.
When income elasticity of demand for the good is positive then the good is normal and when income elasticity of demand is negative then the good is inferior. This is because positive income elasticity means that as income increases then quantity demanded also increases and this happens for normal goods. Whereas negative income elasticity means that as income increases then demand for good decreases and this is what happens for inferior goods.

For example: Electricity, and water are normal goods thus having positive income elasticity of demand. And second hand cars have decreased demand when income increases so they are inferior goods having negative income elasticity of demand.