3.3.2 YED

Question 1

Income elasticity of demand definition

Answer 1

A measure of responsiveness of demand to a change in income.

Question 2

Income elasticity of demand can be positive or negative

Answer 2

income and demand can move in the same direction or opposite directions.

Question 3

Normal good

Answer 3

when demand for product increases when incomes increase.
Normal goods will always have a POSITIVE YED ( a + sign )

Question 4

Inferior good

Answer 4

when demand for a product decreases when incomes decrease.
Will always have a NEGATIVE YED ( a - sign )

Question 5

income inelastic (normal good)

Answer 5

coefficient between -1 and +1
demand changes at a LOWER proportion than the change in income.

Question 6

income elastic (luxury good)

Answer 6

coefficient between +1 and +2
OR between -1 and -2 (inferior good)
demand changes at a HIGHER proportion than the change in income.

Question 7

YED formula

Answer 7

% change in income

Question 8

inferior good (price elastic)

Answer 8

coefficient between -1 and -2
inferior products are things such as own brand products, cigarettes, economy class travel