Income Elasticity - 34

There are some goods and services, however, which display a most interesting feature associated with their income elasticity. Initially, as consumer's incomes rise, demand for these goods also rises. (Although the rate of increase of demand is less than the rate of increase in income).

However, when incomes reach a certain level, the demand for these products actually decreases.

The income elasticity of demand for these products is negative, at certain levels of income.

In developing countries, as income rises, consumers buy more meat and eat less rice or wheat products. In China, as incomes have risen, motorcycles have replaced bicycles.

Goods which have positive income elasticities of demand ( h > 1 ) are called normal goods.

Goods which have negative income elasticities of demand ( h < 1 ) are called inferior goods.

(Note : ''inferior'' here means that as incomes rise, the goods in question are replaced with ''higher quality'' substitutes.)