In The classical marketplace – demand and supply we stated that higher incomes tend to increase the quantity demanded at any price. To measure the responsiveness of demand to income changes, a unit-free measure exists: the income elasticity of demand. The income elasticity of demand is the percentage change in quantity demanded divided by a percentage change in income.
The income elasticity of demand is the percentage
change in quantity demanded divided by a percentage change in income.
Let us use the Greek letter eta, 
, to define the income elasticity
of demand and I to denote income. Then,
As an example, if monthly income increases by 10 percent, and the quantity of magazines purchased increases by 15 percent, then the income elasticity of demand for magazines is 1.5 in value (= 15%/10%). The income elasticity is generally positive, but not always – let us see why.
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