Responsiveness of change in quantity demand to a change in income is explained as income elasticity of demand.

• Relationship between income and demand varies
• Responsiveness of change in quantity demand to a change in income can be
  calculated using the following formula

Yed =  Percentage in quantity demad of good /Percentage change in income

Yed =  { (ΔQd/ΔY) X (Y/Q) }

Goods can be classified according to income elasticity of demand.

• Normal goods Luxury goods
• Essential goods
• Inferior goods
• Income elasticity of demand is positive in normal goods, and less than one.
• Income elasticity of demand more than one is luxury goods.
• If income elasticity of demand is less than one, these goods are said to be essential
  goods.
• Demand for essential goods, sometimes does not change / remain constant ; if
  income is changed.
• When income increases , demand for inferior goods decreases and income elasticity
  is negative.
• This relationship can be illustrated with the following graph
• Determinants of income elasticity of demand can be explained as
• Nature of goods, income group of consumer and etc.

Practical importance of income elasticity of demand can be explained as, follows

• Goods can be classifies with income elasticity of demand.
• Income gap of people can be identified.