1. What is Income Elasticity of Demand (IED)?

Income Elasticity of Demand (IED) measures the responsiveness of the quantity demanded of a good or service to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.

2. How Does the Calculator Work?

The calculator uses the IED formula:

Where:

• \( \Delta Q \) — Change in quantity demanded
• \( Q \) — Initial quantity demanded
• \( \Delta I \) — Change in income
• \( I \) — Initial income

Explanation: The formula calculates how sensitive the demand for labor is to changes in income levels.

3. Importance of IED Calculation

Details: Understanding income elasticity helps businesses and economists predict how changes in income levels will affect demand for labor and various goods/services.

4. Using the Calculator

Tips: Enter the change in quantity, initial quantity, change in income, and initial income. All values must be valid (initial quantity and income cannot be zero).

5. Frequently Asked Questions (FAQ)

Q1: What does a positive IED value indicate?
A: A positive IED indicates a normal good - demand increases as income increases.

Q2: What does a negative IED value indicate?
A: A negative IED indicates an inferior good - demand decreases as income increases.

Q3: How is IED interpreted for labor demand?
A: For labor, IED shows how employment levels respond to changes in income levels in the economy.

Q4: What are typical IED values for different goods?
A: Necessities typically have IED between 0 and 1, luxuries have IED > 1, and inferior goods have negative IED.

Q5: Are there limitations to IED calculation?
A: IED assumes ceteris paribus (other factors constant) and may vary over time and across different income levels.