Tekjuverðteygni

Tekjuverðteygni is a term used in economics to describe the responsiveness of the quantity demanded of a good to changes in consumer income. In Icelandic usage the word tekju means income and teygni means elasticity; the term is commonly used to refer to the income elasticity of demand, though some discussions treat Tekjuverðteygni as a broader measure that also contemplates the interaction between income and price.

Formally, the income elasticity of demand is defined as η_y = (percentage change in quantity demanded) divided by (percentage change in income): η_y = (%ΔQ)/(%ΔY). In empirical models, a common specification is ln Q = α + β ln P + γ ln Y, where γ is the income elasticity and β is the price elasticity. Tekjuverðteygni thus characterizes how demand responds to income movements, holding other factors constant.

Interpretation: a positive Tekjuverðteygni means the good is a normal good; a negative value indicates an inferior good. The larger the absolute value, the stronger the response to income changes; luxury goods typically have γ greater than 1, while basic necessities have γ between 0 and 1.

Estimation and use: economists estimate Tekjuverðteygni from observed data on quantities, income, and prices, using regression or demand-system methods. The concept helps in forecasting demand under income shocks and in evaluating policy effects on consumption.

Limitations: Tekjuverðteygni is not constant; it varies with income level, time horizon, and context. It may differ across regions, demographic groups, and product categories, and measurement error or simultaneity with price can bias estimates.