1.2.5 Income Elasticity Of Demand ****** Flashcards
1
Q
What are the 3 types of goods?
A
Inferior
Necessity
Luxury
2
Q
Define inferior good
A
A good where demand decreases when consumer income increases
3
Q
Define necessity good
A
A good where demand increases when consumer income increases
4
Q
Define luxury good
A
A good where demand increases more than proportionally as income rises
5
Q
Define income elasticity of demand
A
The responsiveness of demand to a change in income
6
Q
What is the YED value for a necessity good?
A
Between 0 and 1 (eg 0.4)
7
Q
What is the YED value for an inferior good?
A
Less than 0 (eg -1.5)
8
Q
What is the YED value for luxury goods?
A
More than 1 (eg 2.5)
9
Q
How do you calculate YED?
A
% change in quantity demanded / % change in income
