1.2.5 Income elasticity of demand Flashcards
1
Q
definition of YED
A
Measures the extent to which the quantity of a product demanded is affected by a change in income
2
Q
formula for YED
A
% change in quantity demanded
__________________________________
% change in income
3
Q
factors that influence YED
A
- income levels
- consumer preferences
- nature of the goods
4
Q
YED for Necessity products
A
- income elasticity is less than 1, but more than 0
- as income rises, demand also rises but at a slower rate
5
Q
YED for Luxury products
A
- income elasticity is more than 1
- demand for luxury products is faster than the increase of income
6
Q
how does Income elasticity help a business
A
-helps see what will happen if economy grows or shrinks
