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1.3 Managerial Eco.prof.Ruchika

1.3 Managerial Eco.prof.Ruchika

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Published by: missu_dharam on Nov 28, 2009
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11/26/2012

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Unlike the price elasticity of demand which is always negative, income elasticity is always positive
except for inferior goods.
The value of income elasticity provides us with information regarding the class of goods in question.
For necessary goods, income elasticity is less than one; luxury goods will have income elasticity
greater than one : for inferior goods, it is negative. Normal goods are goods for which income
elasticity is positive but less than one. The weighted sum of income elasticity of demand for various
goods must add up to one. Let us suppose that the consumer’s income increase by 20%, that of other
goods may increase by less than 20%, and that of yet others may actually fall. Since by hypothesis,
the entire income must be all spent, there will exist some forms of compensation between groups of
goods.

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