Elastiscity (Definitions) - YED

Question 1

YED

Answer 1

Income elasticity of demand refers to the responsiveness of the
quantity demanded for a certain good to a change in the real
income of consumers who buy this good.

Question 2

Normal goods

Answer 2

A product that a consumer will
purchase more of as their income
increases.

value is positive, YED > 0

eg. housing, washing powder, shoes, bread

Question 3

Luxury

Answer 3

A luxury good is a more expensive higher quality good,

We replace inferior goods with goods of a higher quality as they are relatively more affordable.

A product where there is a more
than proportional increase in
consumption when income
increases.
(YED > 1)
eg. restaurants, hotels, holidays
Postive coefficient

Question 4

Necessity

Answer 4

A necessity is a good which consumers buy more of as their income rises but where there is a less than proportional increase in consumption as income rises. It is at some point likely to plateau.
(0 < YED < 1)

Question 5

Inferior

Answer 5

A product that a consumer will
purchase less of as their income
increases.
Cheaper verions, public transport
value is negative, YED < 0)

Question 6

Calculate YED

Answer 6

(Δ Q/ (Q1+ Q2)/2
……………………….
Δ Y/(Y1/Y2)/2