Income Elasticity of Demand - 32

What happens to the demand for a particular good as consumers' incomes change? As you might expect, as income rises, demand for most, but not all goods will increase as well.

For some products, as income rises, demand for the particular good or service rises even faster than income. We can see this in the diagram to our left; the curve moves upward with ever increasing slope. We say the good or service in question is income elastic. Many ''luxury'' goods are income elastic; as we get wealthier, we tend to buy more expensive clothing, and go on more overseas holidays. We do not necessarily buy more shoes for example; we simply buy more expensive shoes (unless you are Imelda Marcos, of course).