The degrees of income elasticity are crucial as they determine how the consumer’s
income could affect their capacity to purchase particular goods or services. There are
three (3) degrees of income elasticity, (1) the positive income elasticity, (2) negative
income elasticity, and (3) zero income elasticity. First, the positive income elasticity
happens when there is an income increase of a consumer; there will also be an
increase in demand for goods and services and vice versa. An example of this is when
consumers have an increased income, they are intended to consume expensive
goods and services like going to an expensive restaurant to eat dinner. However,
when there is a decrease in income, they consume less costly goods and services,
which is when they prefer to cook at home for dinner. Hence, it could be equal to
unity, more than unity (greater than 1), and less than unity (less than 1). Second, the
negative income elasticity is when there is an increase in the consumer’s income, it
leads to a decrease in demand for goods and services and vice versa. An example of
this is when the consumer’s income increases, they prefer to purchase an iPhone
than Cherry Mobile smartphone, leading to a decrease in demand on Cherry Mobile.
Third, the zero income elasticity happens when the increase or decrease of the
consumer’s income does not affect the demand for goods and services. An example
of it is electricity since it is one of the consumer’s primary needs, especially to
function nowadays. Therefore, no matter the increase or decrease in its price, the
demand would still be the same.