Suppose that consumers' incomes increase 12 percent, which results in a 0.6 percent increase in consumption of farm goods at current prices. What is the income elasticity of the demand for the farm?

Income elasticity measures the change in consumer purchases after a change in income. It is measured by a percentage, so its the proportion of both that matters. A positive income elasticity means the good is a normal good. Some textbooks state that an income elasticity between 0 and 1 is a necessity good. An income elasticity that is negative denotes that the good is an inferior good.

Income Elasticity = %changeQd/%change income

To answer this question, just plug in the percentages and calculate the answer:

Income Elasticity = 0.6%/12% = 0.05

This is very close to 0, which can have various technical definitions, but in general, means that consumer purchases will not change very much after an increase in household income.