what is the effect of increase or decrease in the level of income on elasticity of demand?
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Basically, a negative income elasticity of demand is linked with inferior goods, meaning rising incomes will lead to a drop in demand and may mean changes to luxury goods. A positive income elasticity of demand is linked with normal goods. In this case, a rise in income will lead to a rise in demand.
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If the income elasticity of demand is positive, the good is considered to be a normal good – implying that when income increases, the quantity demanded at any given price increases.
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