Economics, 3rd Edition

income elasticity of demand 

a measure of how much 

the quantity demanded of a good responds to a change in 

consumers’ income, computed as the percentage change in 

quantity demanded divided by the percentage change in income

indexation 

the automatic correction of a money amount for the 

effects of inflation by law or contract

indifference curve 

a curve that shows consumption bundles 

that give the consumer the same level of satisfaction

indirect tax 

a tax levied on the sale of goods and services

inferior good 

a good for which, ceteris paribus, an increase in 

income leads to a decrease in demand (and vice versa) 

inflation 

an increase in the overall level of prices in the economy

inflation rate 

the percentage change in the price index from the 

preceding period

inflation tax 

the revenue the government raises by creating 

money