In economics, what elasticity measures how demand changes when consumer income changes?

Income elasticity of demand measures how demand changes when consumer income changes.

It is calculated as the percentage change in quantity demanded divided by the percentage change in income. A positive value generally identifies a normal good, whose demand rises as income rises. A negative value identifies an inferior good, whose demand falls as income rises.

The size of the elasticity helps distinguish necessities from luxuries. Demand for necessities often changes less than proportionally with income, while demand for some luxuries can change more than proportionally.

Results vary by income level, country, time period, and product category. A good can behave as a necessity for one household and a luxury for another, so income elasticity is a measured relationship rather than a permanent label.