1.2.3: (YED) Income Elasticity of Demand

Question 1

What is income elasticity of demand?

Answer 1

• The responsiveness of quantity demanded given a change in income

Question 2

What is the formula for income elasticity of demand (YED)?

Answer 2

• %change in quantity demanded/ % change in income

Question 3

When is demand inelastic in regards to YED?

Answer 3

• If YED is between 0 and 1

Question 4

When is demand elastic in regards to YED?

Answer 4

• IF YED is more than 1

Question 5

What is an inferior good?

Answer 5

• When YED<0
• Here, a rise in income will lead to a fall in demand for the good

Question 6

What is a normal good?

Answer 6

When YED>0, a rise in income will lead to a rise in demand for the good.

Question 7

What is a normal luxury good?

Answer 7

• When YED>1
• An increase in income cases an even bigger increase in demand

Question 8

What is a unitary elastic good?

Answer 8

• A good has a change in demand which is equal to the change in income.
• YED=0