Elasticity of demand for income and its characteristics

The elasticity of demand for income is the dependence of demand on changes in purchasing power. This indicator examines the impact on sales volume of a particular good.

Elasticity of demand for income is in several forms:

- Negative - assumes a decrease in the level of demand with an increase in income. In this case, there is an inverse relationship between the volume of purchases and wages.

- Positive - shows that with an increase in income there is an increase in demand.

- Zero - assumes that with the growth of wages, sales do not change.

To the negative form of elasticity can be attributed poor quality goods, to the positive - almost all normal goods, including luxury. Zero elasticity has essentials (clothes, food, etc.).

The elasticity of demand for income determines how much demand can change by increasing (decreasing) the income of buyers by 1%. In different countries, wage growth encourages people to buy products of different levels. Thus, in the developed economies, demand for luxury goods is increasing . In developing countries, consumers are trying to stock up on durable goods. Studies have also shown that the elasticity of demand depends on the average level of income in the state. For example, the volume of sales for basic necessities is high with low salaries. But with the growth of incomes, the share of food costs begins to decline.

The elasticity of demand for price and income also depends on the social group. So, people with low wages spend most of it on products such as potatoes, bread, milk, that is, for essential goods. For this group, these benefits are very important, and sometimes even a luxury. People with a large income spend a lot on meat, fish, fruits, vegetables. For them, potatoes and bread are ordinary goods that they can easily buy every day. The next layer of the population has even higher incomes, so it can spend them on a variety of high-quality goods, for example, exotic fruits, trips abroad, purchase of equipment, etc. For them, potatoes with bread are products of a lower order.

Studies have confirmed that the greater the proportion of income the population spends on food, the lower the welfare. Now in Russia, more than 70% of the population simply can not meet their basic needs in goods. And a huge number of people live below the poverty line.

The coefficient of elasticity of demand for income for most goods has a positive value. This means that with the growth of wages people start buying more normal goods. At the same time, they buy lower products in smaller quantities. Thus, for the potato, milk and bread, the elasticity coefficient has a negative value.

The elasticity of demand for income is affected by several factors:

- The importance of the good for the family. If the product occupies an important place in the diet, then its elasticity is small.

- Is the benefit a matter of prime necessity or a luxury. So, bread has less elasticity than a machine.

- Conservatism of demand. Consumers usually do not immediately switch to more expensive goods. People who are accustomed to saving, some more time will limit themselves by inertia, and only then will they start buying higher-quality things and products.

The government of each country should strive to ensure that the incomes of the population are constantly increasing, but this should not be associated with high inflation rates. Then people's living standards will increase significantly. They will be able to acquire high-quality and expensive goods, and will not be anxiously looking to the future and constantly saving.