1.2.5 Income elasticity of demand (YED)

Question 1

How is real income calculated?

1

Answer 1

• Avg household income %change - inflation

Question 2

How do you calculate YED and what can the answer be?

2

Answer 2

YED = %Change in demand
%Change in real incomes

• Positive or negative

Question 3

What income elasticity do inferior goods have?

1

Answer 3

• Negative income elasticity

Question 4

What income elasticity do normal goods have and the specific number bracket?
2

Answer 4

• Positive income elasticity

- Between 0.5-1.5

Question 5

What income elasticity do luxury goods have and the specific number?
2

Answer 5

• Very positive YED

- 1.5+