14- Income Elasticity

Question 1

Income Elasticity definition

Answer 1

The responsiveness of quantity demanded given a change in income.

Question 2

Income Elasticity equation

Answer 2

YED= % change in quantity demanded/ % change in income

Question 3

What does it mean if YED is between -1 and 1?

Answer 3

Income inelastic

Question 4

What does it mean if YED is greater than 1 or less than -1?

Answer 4

Income elastic

Question 5

Normal good definition

Answer 5

As income increases so does demand

Question 6

Inferior good definition

Answer 6

As income rises , demand falls because consumers want better quality products

Question 7

Can a good be both inferior and normal?

Answer 7

Yes depending on income

Question 8

Income quantity graph for a normal good

Answer 8

Upward sloping because demand increases as income does

Question 9

Income quantity graph for inferior goods

Answer 9

It’s downwards sloping showing that demand falls as income increases.

Question 10

Income quantity graph for a good which is normal at low levels of income but inferior at higher levels of income

Answer 10

Semi circular curve

Question 11

Income Elasticity of a normal good

Answer 11

A normal good will always have a positive elasticity because quantity demanded and income both increase (giving a positive divided by a positive)

Question 12

Income Elasticity for an inferior good

Answer 12

Income Elasticity for an inferior good will always be negative because the signs on the top and bottom of the equation will be opposite