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What are the determinants of income elasticity of demand?
There are three determinants of income elasticity of demand. These are: Degree of necessity of a good: In a developed economy, as income enhances the demand for luxuries enhances a lot while the demand for necessity enhances a little bit because people cannot consume a lot of basic goods. So the items such as cars have very high income elasticity of demand while items such as potato have low elasticity of demand. Also inferior good have a negative income elasticity of demand.
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Economic Ef ficiency The effort to making products and services in the least costly way without sacrificing excellence.
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