Theme 1.2.5: Income Elasticity Of Demand (YED)

Question 1

Income Elasticity of Demand

Answer 1

Measures the responsiveness of quantity demanded to a change in income

Question 2

Income Elasticity of Demand Formula

Answer 2

% Change in Quantity Demanded / % Change in Consumer Income

Question 3

YED is Income Elastic, What does this mean?

Answer 3

An income change causes a proportionately bigger change in the quantity demanded so change in Q higher than change in Y

Question 4

What Numerical Value tells you Income is Elastic

Answer 4

Number is greater than 1

Question 5

YED is unitary Income Elastic, What does this mean?

Answer 5

An income change causes the same proportionate change in quantity demanded

Question 6

What Numerical Value tells you Income is Unitary Income Elastic?

Answer 6

Exactly 1, no higher or less

Question 7

YED is Income Elastic, what does this mean?

Answer 7

An income change causes a proportionately smaller change in quantity demanded so change in Q is smaller than change in Y

Question 8

What Numerical Value tells you something is Income Elastic?

Answer 8

Between 0 and 1

Question 9

Impact on ‘Normal Goods’ if income rises?

Answer 9

Quantity Demanded goes Up

Question 10

Impact on ‘Normal Goods’ if income falls?

Answer 10

Quantity Demanded goes Down

Question 11

Impact on ‘Inferior Goods’ if income rises?

Answer 11

Quantity Demanded goes Down

Question 12

Impact on ‘Inferior Goods’ if income falls?

Answer 12

Quantity Demanded goes Up

Question 13

Main Factor effecting whether the degree a good or service is income elastic

Answer 13

Whether the product is a luxury or a necessity

Question 14

What are luxury products?

Answer 14

Income Elastic so high YED value because as consumer income rises, people have more disposable income

Question 15

What are necessity products?

Answer 15

Income Inelastic because as consumer income rises, people will shift to the use of more luxury items e.g Asda Smart Price to Asda Finest

Question 16

What economic event is the only real factor in terms of YED that effects a business?

Answer 16

A recession - Incomes usually change slowly so businesses are able to adapt with the changing times, a recession is a quick, mass plunge in income so it is much harder for businesses to prepare or adapt in any form

Question 17

How would a recession effect Luxury Goods?

Answer 17

Demand for them would decrease as people have less disposable income

Question 18

How would a recession effect Necessity Goods?

Answer 18

Demand for them would increase due to the decline in incomes and people being more careful with their money