Elasticities Of Demand (YED) 4.1.3.2

Question 1

What is Income Elasticity of Demand

Answer 1

responsiveness of demand to a change in income

Question 2

What is the formula for YED

Answer 2

%Change in Quantity Demanded/%Change in income

Question 3

What is a normal good

Answer 3

Have a positive income elasticity meaning as income increases we demand and spend more on normal goods

Question 4

What is a normal luxury

Answer 4

YED is greater than 1 (strongly positive ) so as income increase we demand and spend more on then

Question 5

What is a normal necessity

Answer 5

YED between 0-1 so as income rises we spend more but not substantially more on normal necessities

Question 6

What are Inferior Products

Answer 6

negative YED 0 or less so as income increases demand for inferior products decreases

Question 7

What are Inferior goods also known as

Answer 7

Counter Cyclical goods

Question 8

What are counter cyclical goods

Answer 8

products whose demand varies inversley to the economic cycle - so during a recession demand rises

Question 9

It is important to remeber that YED

Answer 9

Is contextual what someone may find a necessity someone else would find a luxury e/g sky sports for a sportd fan

Question 10

descrepancies/inequality/spending going up rapidly between deciles suggests what about YED

Answer 10

strong YED

Question 11

Following an increase in real income if less of a good is purchased what is the good

Answer 11

inferior

Question 12

When will market demand for inferior goods rise

Answer 12

recession / wages rising sloweer than prices

Question 13

During a period of economic growth, demand for inferior goods decrease what does this do to the demand Curve

Answer 13

Cause an inward shift

Question 14

Explain economy food stuff why are they cheap in supermarkets

Answer 14

mass produced and low UC as fixed costs spread out

Question 15

YED varies within a product rnage explain this

Answer 15

YED for own label foods in supermarkets less than higher value finest food ranges

Question 16

Why is there a Downward trend in YED for basic products e.g foodstuffs

Answer 16

As society becomes richer , changes in tastes and preference , what may be considered Luxury several years ago now necessity

Question 17

How can businesses use YED to shift demand

Answer 17

extending their product range to shift demand towards items with a higher income elasticity . e/g Mcvities adding Premium flavours to appeal to customers with a higher disposable income

Question 18

Why is YED important for businesses

Answer 18

• helps firms predict effect of changes in the macroeconomic cycle on their sales - lux products with a high YED see greater sales volatility over a bs cycle than necessities where demand less sensitive to changes in the economic cycle , sales also more stable
• shows bs they need to have diversified product range - one that cuts across different income levels to ensure sales to get revenue and profit to stay afloat

side : higher value added products increase profit margins , they have a high YED and low PED as have relativley few substitutes