1.2.5 income elasticity of demand (YED)

Question 1

income elasticity (def.)

Answer 1

how responsive the change in quantity demanded is to a change in income

Question 2

income elasticity of demand formula

Answer 2

YED = % change in QD / % change in Y

(can be either positive or negative)

Question 3

what does a positive YED mean?

Answer 3

the good is a normal good

either a luxury or a necessity

Question 4

what does a negative YED mean?

Answer 4

the good is an inferior good