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.
