Interpretation of the Income Elasticity Coefficient (YED)

Usually it is the sign of the income elasticity of demand coefficient which is explained though we can also explain the magnitude of the coefficient as we do for price elasticity of demand.

Superior Good

This is when the income elasticity of demand coefficient is povitive and greater than one, meaning as incomes increase by a given percentage demand for the good will increase more than the given percentage increase.

Normal Good

This is when the income elasticity of demand coefficient is positive but less than or equal to one meaning as incomes increase by a given percentage demand for the good will increase less than the given percentage increase.

Inferior Good

A good is described as inferior when its income elasticity of demand coefficient is negative, meaning less will be demanded as incomes rise.

Necessity Goods

Goods are necessity when its income elasticity of demand coefficient is zero (neutral number) meaning demand for the good is insensitive to change in income.