1.2.5 Income elasticity of demand (2/2)

Question 1

3 main factors affecting income elasticity of demand

NLP

Answer 1

• Whether the good is a necessity
• Whether the good is a luxury
• The price of the product relative to incomes

Question 2

Necessities

examples

how will Demand for necessities usually be?

Answer 2

Basic goods that consumers need to buy

e.g food, electricity , water

Demand for necessities are usually income inelastic

Question 3

Luxuries

examples

how will Demand for these luxury goods usually be?

Answer 3

Goods that consumers like to buy if they can afford them

air travel, High fashion

Demand for these goods are usually income elastic

Question 4

how can the price of a product relative to incomes influence income elasticity

Answer 4

For products that are cheap e.g pencils, demand will tend to be income inelastic

For products that expensive e.g houses, demand will be income elastic