1.2.5.YED

Question 1

YED

Answer 1

-How responsive the change in quantity demanded is to a change in income.
-YED=% change in quantity demanded/ % change in income

Question 2

Interpretation of YED value

Answer 2

+ve YED value is considered to be normal good (necessity or luxuries)
>1 Luxury: Demand rises when income rises. Responsive to change in income
-ve YED value is an inferior good
0-1 Necessity: Demand not responsive to a change in income
<0 Inferior (Public transport, domestic holidays, canned foods, unbranded goods): Demand rises when income falls

Question 3

Factors influencing YED

Answer 3

-Recession: wages fall, demand for inferior goods rises whilst demand for luxury goods falls
-Economic growth+rising wages: demand for luxury goods increases whilst inferior goods decreases
-Minimum wage legislation
-Taxation
-Increased international trade
-Influenced also by nature of goods(Inferior or normal)

Question 4

Significance of YED to businesses

Answer 4

Production planning:
-plan how much it is going to produce which will help it determine no. Of resources ie. raw materials and labour required.
-Allows you to accurately predict changes in income to a whether to increase or decrease production.
-Easier to plan when YED is relatively inelastic as demand is more constant

Product planning:
-economy goes through different stages over time from recession so incomes fluctuate (Business cycle)
-During recession producers of inferior goods will benefit from higher demand but will lose out when incomes rise and consumers return to normal goods.
-Some businesses may have different product portfolios (range of products or services) ie. Waitrose with its Essentials range