A2.02.06: YED

Question 1

Define YED

Answer 1

The responsiveness of demand when there’s a change in consumer income

The percentage change in quantity demanded following a change in percentage change in consumer income

Question 2

Formula for YED? (and its rules regarding the signs)

Answer 2

% change in quantity demanded / % change in income of consumer

• Must write positive and negative signs on values

Question 3

What are the values of YED corresponding to the type of good and its elasticity

Answer 3

• YED rises as income rises = Normal good = income elastic
• YED falls as income rises = Inferior good = income inelastic

Question 4

What are the types of goods and their elasticities?

Answer 4

Inferior good:
* YED is negative

Necessity good:
* YED is positive and closer to 0

Normal good:
* YED is positive

Luxury good:
* YED is positive and greater than +1

Question 5

Define income inelastic demand

Answer 5

(YED < 1): The percentage change in quantity demanded is proportionately less following a change in percentage change in consumer income

Question 6

Define income elastic demand

Answer 6

(YED > 1): The percentage change in quantity demanded is proportionately more following a change in percentage change in consumer income