Income elasticity of demand (YED) Flashcards Preview

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Flashcards in Income elasticity of demand (YED) Deck (12)
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1
Q

Define income elasticity of demand?

A

YED measures the responsiveness of quantity demanded given a change in income.

2
Q

how do you calculate income elasticity of demand?

A

this is where you calculate the percentage change in quantity demanded/quantity change in price

to calculate the percentage change you do difference/originalx100
remember you que before you pee to remember.

3
Q

what is the main role of YED?

A

it indicates whether we are working with inferior goods and normal goods.

4
Q

what does normal good mean?

A

Normal good has a positive relationship as incomes rise the demand will rise e.g organic pasta and noodles the demand for these products will rise since income is rising.

5
Q

what does inferior goods mean?

A

Inferior goods have an inverse relationship so it has a negative effect, where if the income was to rise the demand will go down and vice-versa, e.g canned veggies or soups.

6
Q

when you calculate yed, if the figure is positive what does this say?

A

if the figure is positive it states that it is a normal good.

7
Q

when you calculate YED, if the figure is negative what does this mean?

A

if the figure is negative it is an inferior good

8
Q

when you calculate the elasticity of normal goods if YED is greater than one what does this mean?

A

This means that demand is income elastic, which means that as incomes rise the demand for normal goods will increase by a huger proportion, so we can say that it’s a normal luxury since as the income of consumers rise the demand will increase by a higher amount for luxury items.

9
Q

when you calculate YED and it is less than one what does this mean for normal goods?

A

when it is less than 1 this means that demand is income-inelastic so as incomes are rising the demand will rise by a smaller proportion, it’s a normal necessity since consumers become richer.

10
Q

for inferior goods if it is greater than one what does this mean?

A

demand is income elastic

11
Q

for inferior goods, if it is less than one what does this mean?

A

demand is income inelastic

12
Q

for inferior goods when it is 0 what does this mean?

A

demand is perfectly income elastic this applies to inferior/normal goods.