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
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
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
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