Lesson 31

Question 1

If a product requires a large proportion of consumer’s incomes to purchase it, it is likely … (give example)

Answer 1

to be more elastic

e.g. with the purchase of homes

Question 2

Addiction makes products inelastic/elastic

Answer 2

inelastic

as consumers are likely to continue to buy a product regardless of a price

as they are addicted

e.g. cigarettes

Question 3

YED meaning

Answer 3

income elasticity of demand

Question 4

Formula for YED

Answer 4

percentage change in quantity demanded / percentage change in consumer income

Question 5

Income increased by 10%, demand increased by 5%, the YED is?

Answer 5

+5% / +10% = +0.5

Question 6

Why do you use + in YED answers?

Answer 6

As YED can be positive or negative

+ helps you remember if it is pos. or neg.

Question 7

What does YED measure

Answer 7

the responsiveness of demand after a change in income

Question 8

+1 to infinity YED value means…

Answer 8

luxury good (elastic)

income increases by a little, and demand for that good increases by a lot

Positive externality

Question 9

0 to +1 YED value means …

Answer 9

Normal good (inelastic)

Small increase in income means a small increase in demand

Question 10

0 YED value means …

Answer 10

no relationship

When income changes, there is no change to quantity demanded

e.g. petrol, as people will get it regardless of price

Question 11

0 to -1 YED value means …

Answer 11

Inelastic inferior good

Income increases, demand decreases by a small amount

Question 12

-1 to - infinity YED value means…

Answer 12

Elastic inferior good

Income increases, demand drastically decreases

e.g. bus transport

Question 13

What is a YED graph the same as but slightly altered?

Answer 13

Demand/ supply to price graphs

but with income instead of price