 module 36, income elasticity. In economic theory, income elasticity is a ratio that indicates percentage change in quantity demand due to percentage change in price. In agriculture economics, if our objective is to measure the income elasticity of demand for organic food, we can measure it by using, by computing the ratio between the percentage change in quantity demand for organic food because of percentage change in income. For the computation of the percentage change in quantity demand for organic food, in the slide we are denoting change in Q over Q into 100. Here, delta Q basically indicates change in quantity between two points. While Q that is, that we are indicating in the denominator of the equation, it is the point of reference against which we want to compute the percentage change in quantity demand. Then, in the same pattern, when we talk about percentage change in income, we are denoting it with delta I over I into 100. Again, delta I denotes change in income between two points. While the income that is present in the denominator, it is the point of reference. What is the point of reference for percentage change in income compute? Now, to collaborate with this, suppose you will see in this diagram that we are taking quantity demand for organic food on horizontal axis and we are indicating the income on a vertical axis and we have drawn a positively sloped line here. In which one point is C, C denotes the quantity demand for organic food if income is equal to 1000 rupees. Then, there is another point on this positively sloped curve to which we denote with D. This D denotes another combination that indicates the quantity demand is equal to 5 if income of the household becomes 3000 rupees. And for the computation of income elasticity demand, we will ultimately use a formula where change in quantity over change in income is multiplied with point of reference of income and quantity. And to compute income elasticity on these two points, now we compute income elasticity demand at point C and D. Now, to compute income elasticity of demand here, we are using formula change in quantity because of change in income multiplied by I over Q. What is I over Q? These are the values of income and quantity demand at which we want to compute the income elasticity of demand. If our objective is to compute the income elasticity demand at point C, then what I have to do first is to see what is the slope of this curve. And if I talk about change in quantity here, then the change in quantity between point C to D is equal to 4. And while if we look at the change in income between these two points, it is equal to 2K income at point D is equal to 3000 rupees while income at point C is equal to 1000 rupees. So, change in Q because of change in income is equal to 4 over 2. 4 denotes change in quantity between point C to D while 2 denotes change in income from point C to D. Now, if my objective is to compute income elasticity of demand at point C, then income at point C is equal to 1 and quantity demand at point, against point C is also equal to 1. So, computed value of elasticity at this particular point is equal to 2. So, we can say that if income is increased by 1%, quantity demand will increase by 2%. But this computed value of elasticity will be different if we compute it with reference to point D. Again at point D, slope of this curve is again is equal to change in quantity because of change in income multiplied by I over 2. So, slope is again equal to 4 over 2. But the point of reference against which we want to compute the elasticity. Now, it is point D and against point D, income is equal to 3 while the quantity demand is equal to 5. So, at this particular point, income elasticity of demand is equal to 1.2. That indicates keeping other things constant if income is increased by 1%, then quantity demand will increase by 1.2%. So, by moving from point C to point D, we can say income elasticity of demand of the commodity decreases. It is more elastic at point C while it is less elastic at point D and just like price elasticity of demand, income elasticity of demand also changes as we move along along the curve. Now, we have computed the income elasticity of demand. We have seen that your income elasticity of demand is varying when we move along that curve. So, income elasticity varies along the range of the curve. It might be possible in one part of the curve, it is more elastic as compared to income elasticity of demand at another point. Another thing is that if income elasticity of demand is mostly a positive number. Why is it positive? The commodities we consider are usually normal goods. Normal goods are basically those commodities for which with the increase in income, there is increase in quantity demand. But sometimes, the quantity demand of a commodity decreases when the commodity under consideration is an inferior good. Another thing we can observe is that with the increase in income or people who have high income, their income elasticity of income elasticity of demand for food is relatively less as compared to those individuals whose income is relatively low. So, income elasticity of demand for food for high income is usually less than the income elasticity of demand for food for low income households. Now, we measure income elasticity by using the expenditure instead of physical quantities. When we measure elasticities using expenditures, then we say that these are the expenditure elasticities. That expenditures on a particular product is a function of total expenditures. And when you measure this coefficient on this pattern, then we say that these are the expenditure elasticities. Now, when we talk about that because of consumers with high income are likely to buy products of higher quality than the consumer with low income, we can observe that as income of household increases, they usually go towards the quality products. It might be possible if I talk about that consumers can get food either organic in nature or inorganic in nature. Now, if the income household increases, what will they do? It might be possible they move towards the organic food. And when we talk about organic food, it might be possible that organic food is available with some additional services. What can be additional services? It might be possible that organic food is available on the doorstep of the consumer. So, the expenditure change in response to income because of change in the quality of the product. It also include the service effect in the computation of the expenditures on that particular commodity. This diagram, we are basically showing you what is the impact of household's income on the expenditure elasticity. When you talk about the reference of grains, usually what is it that as household income increases, initially expenditure elasticity increases. At a certain threshold level of income, expenditure elasticity will be maximum. Then it starts decreasing. When we discuss this with reference to organic food, usually with the increase in household income, expenditure elasticity increases. But as a whole, the expenditure on food is concerned initially with the increase in income, expenditure elasticity of household increases. Then reaches at a maximum point and then again it starts decreasing. So, I think now you are in a position to understand the income elasticity demand for agricultural output. So, what is the impact of percentage change in quantity demand on percentage change in income. And if this impact can be elastic, any elastic can be elastic or unit elastic can be elastic.