1.2.5 Income elasticity of demand

Question 1

Define income elasticity of demand?

Answer 1

measures the responsiveness of demand to change in income

Question 2

Examples of income elastic products?

Answer 2

Cars, luxury goods, and holidays

Question 3

Examples of income elastic products?

Answer 3

essential goods like milk and food

Question 4

What is the numerical value of income elastic?

Answer 4

if the value is higher than 1

Question 5

What is the numerical value of income inelastic?

Answer 5

if value is less than 1

Question 6

What is the numerical value of normal goods?

Answer 6

if the value is positive

Question 7

What is the numerical value of inferior goods?

Answer 7

if the value is negative

Question 8

2 factors influencing income elasticity of income?

Answer 8

necessities and luxury goods

Question 9

Why is it significant if businesses sell goods with high income elasticity?

Answer 9

demand can change when economy is growing or in recession - they might have to plan if demand changes dramatically

Question 10

What is discretionary spending?

Answer 10

non essential spending