chapter 9 - income elasticity of demand

Question 1

income elasticity of demand

Answer 1

measures the relationship between a change in quantity demanded for a good X and a change in real income

Question 2

what will happen to demand of luxury goods as income rises

Answer 2

demand will rise

Question 3

what will happen to demand of inferior goods if incomes rise

Answer 3

demand will fall. switches will occur to substitutes

Question 4

income elasticity of demand calculation

Answer 4

     % change in income

Question 5

unitary

Answer 5

if the % income rises is proportional to the rise in demand it will be unitary = value of 1

Question 6

negative income inelastic

Answer 6

demand falls as incomes rise, inferior goods
value of -1

Question 7

income inelastic

Answer 7

a % change in income results in a less than proportional % change in demand or demand doesn’t change
as income changes
value of 0, 0 <1

Question 8

incomes elastic

Answer 8

demand changes by a greater % proportion than % change in income
value >1

Question 9

5 factors affecting YED

Answer 9

1. need - inelastic YED
2. habit - inelastic YED
3. confidence
4. wider economic outlook ( recession and boom)
5. want - elastic YED

Question 10

demand and supply can be affected by many factors, but what do you need to identify first?

Answer 10

the good and market conditions