Difference between Price Elasticity and Income Elasticity of Demand
Learning
Contents:
·
Difference
between Price Elasticity and Income Elasticity of Demand
Basis of Difference
|
Price
Elasticity of Demand |
Income
Elasticity of Demand
|
Meaning |
It is the ratio of the
percentage change in quantity demanded to the percentage change in the price
of the commodity. |
It is the ratio of the percentage change in quantity demanded to the percentage change in the income of the consumer. |
Sensitivity |
It measures the demand’s sensitivity to change in price. |
It measures the demand’s sensitivity to change in income. |
Nature of Relationship |
The relationship between quantity demanded and the price is always negative or inverse. In other words, the Price
elasticity of demand is always negative. |
The relationship between quantity demanded and income is based upon the type of goods: Positive relationship for normal goods and negative relationship for inferior goods.
In other words, the Income elasticity of demand can either be positive or
negative. |
Degrees of
Elasticity |
The degree of price elasticity
varies from 0 to ∞ |
The degree of income elasticity
varies from +∞ to -∞ depending upon the nature of goods. |
Coefficient |
The price elasticity of demand coefficient is denoted by EP or PED. |
The income elasticity of demand
coefficient is denoted by EY or YED. |
Formula |
PED = % Change in Quantity
Demanded / % Change in Price |
YED = % Change in Quantity
Demanded / % Change in Income |
Curve |
The price demand curve is always downward sloping leaving
exceptional cases. |
The income demand curve is upward
sloping for normal goods and downward sloping for inferior goods. |
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