1.2.5 Income elasticity of demand (1/2)

Question 1

Income elasticity of demand

Answer 1

Measures the relationship between responsiveness of demand to a change in income

Question 2

Income elastic demand

Answer 2

A change in income results in a big change of demand

Question 3

Which goods are income elastic

Answer 3

Normal goods

Question 4

Normal good

Answer 4

good for which demand increases when income rises and vice versa

e.g fashion holidays cars

Question 5

Income inelastic demand

Answer 5

A change in income results in a relatively small change of demand/ demand will stay the same

Question 6

Examples of income inelastic demand

Answer 6

Essential goods e.g milk , general food , fuel

Question 7

Numerical value for income elastic

Answer 7

if income elasticity is greater than 1

Question 8

Numerical value for income inelastic

Answer 8

if income elasticity is less than 1

Question 9

The value of income elasticity - e.g whether the product is a positive (+) or a negative can indicate what?

Answer 9

can indicate if a a good is a normal good or inferior good

Question 10

Value of income elasticity for normal good

Answer 10

Positive (+)

where an increase in income results in an increase in demand

go to table 1

Question 11

Inferior good

Answer 11

a good for which demand decreases when income rises and vice versa

e.g public transports , frozen dinners

Question 12

Value of income elasticity of demand for inferior good

Answer 12

Negative (-)

where an increase in income results in a decrease in demand

go to table 1