1.2.5 YED

Question 1

What is the YED

Answer 1

A measure of the responsiveness of quantity demanded due to a change in income

Question 2

What is the formula for YED

Answer 2

Percentage change of quantity demanded ÷ percentage change of income

Question 3

What is income elastic

Answer 3

If the YED is more than +1 or less then -1

Question 4

What is income inelastic

Answer 4

When the YED is less than +1 or more than -1

Question 5

How does whether the good or service is a necessity effect YED

Answer 5

If increased increased the demand for necessity’s would fall but by a small amount

Question 6

What is a normal good

Answer 6

E.g. cars
Have a positive income elasticity value, meaning that an increase in income leads to an increase in the quantity demanded

Question 7

How does whether the good or service is a luxury effect YED

Answer 7

If income decreases demand for luxury items would fall significantly

Question 8

What is an inferior good

Answer 8

E.g. cheap white bread
Has a negative YED value so when income decreases, demand increases

Question 9

How does whether the product price is a large part of income effect YED

Answer 9

A good example would be a pencil compared to a house. What would happen to demand for each product if income fell?
The demand for pencils wouldn’t change but the demand for a house would fall significantly