Income Elasticity of demand

Sir in income Elasticity of demand if a consumer always spends a 15 percentage of income eg food even though his income rise or decreases then it is said is said to be equal to one. But my doubt is why is equal to one as he spends a same percentage even though rise or decrease in income so it is said to inelastic or zero only why in book it is said equal to one. Pls help me

Answers (4)

Best Answer

When a fixed percentage is spent, the increase or decrease in expenditure will be in same proportion to the increase or decrease in income. For e.g. If 15% is spent and Income is 100 - Amount spent is 15. If Income is 120 - Amount spent is 18. if you see the proportion of change, it is equal and hence it is 1.