Application of YED

Question 1

Producers

Answer 1

• knowledge of YED
• plan and adjust production
• maximise profit
• avoid losses

Question 2

Producers (Income increase, demand for normal goods)

Answer 2

• Economic growth, incomes of consumers rise
• substantial rise in demand for gds with high positive income elasticity (YED>1)
• e.g. Samsung Galaxy S series
• profit-maximising producers step up production in anticipation of increase in demand

Question 3

Producers (Income increase, demand for inferior goods)

Answer 3

• inferior goods negative income elasticity (YED<1)
• producers cut down production of inferior goods
• avoid losses
• prevent accumulation of stocks
• e.g. Samsung Galaxy J series (budget)

Question 4

Government

Answer 4

• knowledge of YED allows gov to identity areas to spend on
• planning expenditure on social gds and svs
• can provide better and more social and community svs, meet increasing demand of public
• e.g. national income of country increases, ppl demand btr recreational amenities/medical care/educational facilities (goods with high income elasticity)