IED is a measure of the responsiveness of demand
to a change in income
, and is studied in economics
. It is calculated as ( ΔQd / ΔI ), where "ΔQd" is the percentage change in quantity demanded, and "ΔI" is the percentage change in income.
In English, this means that goods reliant on high incomes have high IED's, and goods that will be sold regardless of income have low IED's. Inferior goods, things that people will buy more of when strapped for cash (ramen, Wal-Mart, etc.), have negative IED's.
Some sample IED figures in the United States (taken from Parkin, Microeconomics):
This means that every percentage change in income leads to, roughly, a 5.82% change in spending on airline travel, and a 0.14% change in spending on food. So if a recession
drives average income down five percent, the airlines lose almost 30% of their business, but farmers lose less than one percent.
Of course, different economies have different income elasticies. In Japan, for instance, IED for food is about twice as high as it is in the United States. In India, it's five times as high.