3.2i - Income Elasticity of Demand Flashcards
1
Q
Income elasticity of demand definition
A
The degree to which demand changes in response to a change in real income
2
Q
YED formula
A
% change in demand / % change in income
3
Q
What type of product has a YED of between 0 and +1?
A
Normal necessities
4
Q
What type of product has a YED greater than +1?
A
Luxuries - demand rises more than proportionate to a change in income
5
Q
What type of product has a negative YED?
A
Inferior goods - demand falls as income rises
6
Q
Examples of normal necessities:
A
- Staple foods (bread)
- Mass transport
- Beer
- Takeaway pizza
7
Q
Examples of luxuries:
A
- Fine wines
- High quality chocolates
- Oversea holidays
8
Q
Examples of inferior goods:
A
- Cheaper cars
- Cheaper beer
- Inexpensive foods
