Income elasticity of demand refers to the responsiveness of the quantity of a good or service demanded to a change in the income of the consumers. There are four main types of income elasticity of demand: positive, negative, zero, and infinite.
Positive income elasticity of demand occurs when an increase in income leads to an increase in the demand for a good or service. Examples of goods and services with positive income elasticity of demand include luxury items such as jewelry, high-end clothing, and vacations. As consumers' incomes increase, they are more likely to purchase these types of items.
Negative income elasticity of demand occurs when an increase in income leads to a decrease in the demand for a good or service. Examples of goods and services with negative income elasticity of demand include necessities such as food, clothing, and shelter. As consumers' incomes increase, they are less likely to purchase these types of items because they are already fulfilling their basic needs.
Zero income elasticity of demand occurs when an increase in income has no effect on the demand for a good or service. Examples of goods and services with zero income elasticity of demand include items that are considered necessities but are not considered luxuries, such as gasoline and utilities.
Infinite income elasticity of demand occurs when the demand for a good or service increases infinitely as income increases. An example of a good or service with infinite income elasticity of demand is charitable giving. As consumers' incomes increase, they may choose to donate an increasing portion of their income to charitable causes.
In conclusion, income elasticity of demand refers to the relationship between changes in income and changes in the demand for a good or service. There are four main types of income elasticity of demand: positive, negative, zero, and infinite, each of which describes a different relationship between income and demand.