Answer: Income elasticity of demand measures the degree of responsiveness of a consumer's quantity demanded (for goods or services) in relation to a slight change in the consumer's income.
Explanation: When there is a slight change in the consumer's income (increase or decrease), the quantity demanded will be affected and the response can go in either direction (that is, increase or decrease). For example, a 25% increase in a consumer's monthly income might be followed by a 40% increase in his/her monthly demand for a given commodity. This example reflects an elastic demand, (that is, greater than 1). The income elasticity of demand is calculated as,
% change in quantity demanded / % change in income