YED (1.2.5)

Question 1

What is Income Elasticity of Demand?

Answer 1

Income elasticity of Demand is the responsiveness of Income change on the quantity demanded of a good. Businesses are interested in how much the quantity demanded will change for different products.

Question 2

What are the Three Types of Goods?

Answer 2

Normal Good, Luxury Good and Inferior Good

Question 3

What happens when Income increases to Sales of Normal Goods?

Answer 3

As Income increases Normal Goods will see an increase in QD as we buy a little more of these products.

Question 4

What happens when Income increases to Sales of Luxury Goods?

Answer 4

When Income increases Luxury Goods will see an increase in sales as the increased income will mean people have more to spend on luxury items.

Question 5

What happens when Income increases to Sales of Inferior Goods?

Answer 5

When Income increases Inferior Goods will see a decrease in QD as we switch to higher quality, better items.

Question 6

What is the Formula for YED?

Answer 6

YED= %Change QD/ %Change Y

Question 7

Someone’s income falls from £450 per week to £405 pw. This causes their demand for takeaways to go from 50 to 30 pw. What’s the YED for takeaway meals?

Answer 7

(50-30)/50
x100= -40%
(£450-£405)/£450
x100= -10%
-40%/-10%=4

Question 8

What type of goods are the numerical values of YED?

Answer 8

> 1= Luxury good
0-1= Necessity
<0= Inferior

Question 9

What factors cause a change in a persons income?

Answer 9

-Recession= demand for inferior goods increases while demand for luxury decreases
-Economic Growth= demand for luxury goods increases while demand for inferior decreases
-Minimum wage legislation
-Taxation
-Increased international trade

Question 10

Why is understanding YED good for a business?

Answer 10

This can help a business to plan their production and products to generate higher profits.

Question 11

What is production planning?

Answer 11

When a business plans how much its going to produce to help it determine the number of resources such as raw materials and labour it will need.

Question 12

What is product planning?

Answer 12

The economy goes through different stages over time from recession to recovery and growth so incomes will fluctuate. This is known as the Business Cycle. Some businesses have different products in their portfolio to not lose out when peoples incomes fluctuate