income elasticity of demand

Question 1

demand for a product changes when a consumer’s income change

Answer 1

income elasticity of demand

Question 2

• __ are everyday items that people buy, such as food, clothes,and other basic needs.
• For example, if someone gets a higher-paying job, they might start purchasing better-qualityclothes or eating out more often. This increase in demand happens because people have more money to spend, so they can afford to buy more or choose better versions of the goods they already use.
• A rise in income will cause an increase in the quantity demanded.
• Have a positive income elasticity of demand, but less than one.
• A higher level of income for a normal good causes a demand curve to shift to the right.

Answer 2

normal good

Question 3

• __ are products that people tend to buy less of when their income increases or when the overall economyimproves.
• A common example is instant noodles—people might rely on them when money is tight, but buy fresh or restaurant-prepared meals when their income increases.
• An increase in income means that one might purchase less of the good
• Havea negative income elasticity of demand
• A higher level of income would cause the demand curve for that good to shift to the left.

Answer 3

inferior goods

Question 4

normal goods consist of

Answer 4

necessities and luxuries

Question 5

• Income Elasticity of Demand: Between 0 and 1
• Demand increases slightlyas income increases.
• These are essential goods that consumers continue to buy even with low income.
• Demand doesn’t change drastically with income fluctuations.
• Examples: Food, Clothing, Electricity, Basic healthcare, Water

Answer 5

necessities

Question 6

• Income Elasticity of Demand: Greater than 1
• Demand increases significantlyas income rises.
• These are non-essential or high-end goods that consumers may avoid when income is low.
• Considered “extras” that people can do without if necessary
  -Examples: Caviar, Designer Handbags, Vacations, Jewelry

Answer 6

luxuries

Question 7

• Also known as equal to one
• The rise in income is proportionate to the increase in the quantity demanded.
• An increase/decrease in income would also mean an increase/decrease in quantity demanded at the sameamount/percentage

Answer 7

income elasticity of demand (unitary)

Question 8

• the change in consumer income doesn’t affect product demand consumers purchase the sameamount of the
• product when their income increasesas when it decreases goods can either be essential or neutral

Answer 8

income elasticity of demand (zero)