1.2.5 Income elasticity of demand (2/2) Flashcards

1
Q

3 main factors affecting income elasticity of demand

NLP

A
  • Whether the good is a necessity
  • Whether the good is a luxury
  • The price of the product relative to incomes
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2
Q

Necessities

examples

how will Demand for necessities usually be?

A

Basic goods that consumers need to buy

e.g food, electricity , water

Demand for necessities are usually income inelastic

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3
Q

Luxuries

examples

how will Demand for these luxury goods usually be?

A

Goods that consumers like to buy if they can afford them

air travel, High fashion

Demand for these goods are usually income elastic

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4
Q

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

A

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

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