income elasticity of demand

Question 1

what is yed

Answer 1

-the responsiveness of demand to a change in income

Question 2

calculation of yed

Answer 2

% change in quantity demanded divided by % change in income

Question 3

income elastic demand

Answer 3

• a % change in incomes = would lead to a proportionate or greater % change in the quantity demanded.

eg- cars, TVs, holidays and clothing

Question 4

income inelastic demand

Answer 4

a % change in incomes will leads to a proportionately lower change in the quantity demanded.

Question 5

normal goods

Answer 5

• increase in income= increase in quantity demanded
  -positive income elasticity demand

Question 6

inferior goods

Answer 6

increase in incomes = fall in demand

eg. fast food products

Question 7

factors influencing income elasticity of demand

Answer 7

• whether the product is considered a necessity or a luxury
  -the price relative to people’s income
  a chocolate bars costs low as its a small % of most people’s income

Question 8

the significance of income elasticity of demand to businesses

Answer 8

-for planning
-for product portfolio

Question 9

limitations of using elasticities

Answer 9

-other factos affect demand- consumer tastes
-competitors will react. pricing strategies not to be taken in isolation
-markets subject to rapid tech advancements