2.2.4 Income elasticity of demand (YED)

Question 1

What is income elasticity of demand

Answer 1

Is the responsiveness of a change in demand to a change in income.

Question 2

What is the formula for YED

Answer 2

%change in QD / %change in income

Question 3

How does income level change

Answer 3

If the economy improves/ worsens or if there is a change in government policy

Question 4

What is an inferior good

Answer 4

Those which see a fall in demand as income increases.

• As income increases, consumers switch to branded goods.

Question 5

An example of an inferior good

Answer 5

the ‘value’ options at supermarkets

Question 6

Numerical values of YED in inferior goods

Answer 6

< 0

Question 7

What is a normal necessary good

Answer 7

demand increases as income increases.

Question 8

Numerical values of YED with normal necessary goods

Answer 8

YED >0.
When YED = 0, demand for the product does not change when incomes change.
A value of YED between 0 & 1 indicates that demand only increases by a smaller proportion than the increase in income, which is income inelastic.

Question 9

What is a normal luxury good

Answer 9

an increase in income causes an even bigger increase in demand

Question 10

Numerical values of YED with normal luxury goods

Answer 10

YED > 1