Importance of Income Elasticity of Demand:

(a) Income elasticity of demand shows how the pattern of consumer demand changes in response to economic growth or decline. If an economy is growing, consumer demand for m=normal goods increases while the demand for inferior goods falls.

(b) Income elasticity of demand is also important for businessmen when palling investments. Outputs of inferior goods should not be expanded during times that incomes are rising while those of normal goods could be expanded during times that incomes are rising.