1.2.5 - YED

Question 1

define YED

Answer 1

it measure the responsiveness of demand for a product to a change in real incomes

Question 2

define real income

Answer 2

the amount by which average incomes have adjusted for inflation

Question 3

what is the formula for YED?

Answer 3

YED = %change in demand / %change in real incomes

Question 4

what is an inferior good? what impact do these goods have on demand?

Answer 4

• goods with a negative income elasticity
• when real income increases demand will decrease
• when real income decreases demand will increase

Question 5

what is a normal good? what impact do these goods have on demand?

Answer 5

• goods with a positive income elasticity between 0 and 1
• when real income increases demand increases at the same rate as real income
• when real income decreases demand decreases at the same rate as real income

Question 6

what is a luxury good? what impact do these goods have on demand?

Answer 6

• goods and with a positive YED that is >1
• when real income increases demand increases at a faster rate than real incomes
• when real income decreases demand decreases at a faster rate than real incomes

Question 7

list the factors affecting YED

Answer 7

• whether the product is a necessity or not
• who the product is aimed towards

Question 8

uses of YED

Answer 8

• sales forecasting
• financial planning
• product portfolio management