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Income Elasticity of Demand:
Income Elasticity of Demand can be defined as proportionate change in demand of a commodity due to proportionate change in income of a consumer.
Income elasticity of demand is mainly of three types:
*Positive income elasticity of demand.
*Negative income elasticity of demand.
*Zero income elasticity of demand.

1) Positive Income Elasticity of Demand
When an increase in income leads to an increase in the quantity demanded, it is known as positive income elasticity of demand. For most goods, the income elasticity of demand is positive, that is, when income rises, demand also rises.

Positive income elasticity may be of three types :
(a) Income elasticity equal to unity or one:
When the quantity demanded changes in exact proportion to change in income, we say that income elasticity of demand is equal to unity. Thus, for example, a 10% change in income if it leads to 10% change in demand, income elasticity of demand will be said to unity.

(b) Income elasticity greater than unity or one : When the proportionate change in the quantity demanded is more than the proportionate change in income, we say that income elasticity of demand is greater than unity. Thus, a 10 percent change in income if it leads to 15 percent change in demand, income elasticity of demand will said to be greater than unity

c) Income elasticity less than unity or one :
When the proportionate change in the quantity demanded is less than the proportionate change in income, we say that income elasticity of demand is less than unity. Thus, a 10 percent change in income if it leads to 7 percent change in demand, income elasticity of demand will be said to be less than unity.

2) Negative Income Elasticity of Demand :
When an increase in income leads to a fall in the quantity demanded of a product, it is known as negative income elasticity of demand. In the case of Giffen Goods or inferior goods, income elasticity is negative, indicating that as income increases demand for such goods falls.

3) Zero Income Elasticity of Demand:
When there is no change in demand in spite of a rise or fall in the income of the consumer, it is known as zero income elasticity of demand. The shape of such a demand curve is a straight line parallel to vertical y-axis indicating that inspite of a change in income, the demand remains stable.

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