1.2.5 income elasticity

Question 1

what is income elasticity of demand

Answer 1

it measures the exent to which the quantity of a product demanded is affected by a change in income

Question 2

what is the formula for income elasticity of demand

Answer 2

%change in income

Question 3

what does it mean if the income elasticity of demand is inelastic

Answer 3

the demand changes at a lower proportion than the change in income

Question 4

what does it mean if the income elasticity of demand is elastic

Answer 4

demand changes at a higher proportion than the change in income

Question 5

how do you know if the income easticity of deman is elastic

Answer 5

if the YED is grater or smaller than 1

Question 6

how do you know if the income easticity of deman is inelastic

Answer 6

if the YED is between -1 0 1

Question 7

what is an normal good

Answer 7

when demand for a product increases due to income inreasing

Question 8

do normal goods have a positive or negative income elasticity of demand

Answer 8

normal goods always have a positive income elasticity of demand

Question 9

what can normal goods be classed as

Answer 9

they are classed as necessities and luxuries

Question 10

what are inferior goods

Answer 10

when demand for a product decreases due to incomes increasing

Question 11

what are the benefits of an inferior good

Answer 11

• consumers swithc to better alternaives

- substitute products become affordable

Question 12

do inferior goods have a negtive income elasticity of demand positive or negativeza

Answer 12

inferior goods will always have a negative income elasticity of demand

Question 13

why is calculating PED and YED useful

Answer 13

• elasticities provide useful insights for management in decision-making
• firms tend to like to have products with inelastic demand
• building strong brands and product USPs is a good strategy for making demand more price inelastic