Income Elasticity Demand Flashcards
What does the income elasticity of demand show?
The income elasticity of demand shows the correlation between quantity demanded and customers’ incomes.
Income elasticity of demand (YED) formula
% change in quantity demanded
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% change in consumer income
What does a positive YED answer mean?
If the answer is positive this means an increase in income increases demand. Equally, if income falls so does the quantity demanded.
This is known as a ‘normal product’
What does a negative YED answer mean?
If the answer is negative this means that as income increases the quantity demanded falls. If income falls then the demand increases.
These products are known as ‘inferior product’
Why does income elasticity matter?
An understanding of income elasticity is useful to managers because it helps them plan for changes in consumers incomes.
Inelastic or elastic?
% change in quantity demanded is less than the % change in income
Inelastic
Inelastic or elastic?
% change in quantity demanded is more than the % change in income
Elastic
What is the result of positive income elasticity?
‘Normal’ products; an increase in income increase the quantity demanded
What is the result of negative income elasticity?
‘Inferior’ products; an increase in income decreases the quantity demanded
What does it mean if income elasticity is less than one?
Inelastic; the percentage change in quantity demanded is less than the percentage change in income
What does it mean if income elasticity is more than one?
Elastic; the percentage change in quantity demanded is more than the percentage change in income
What is ‘Big Data’ ?
Big data refers to large and complex data sets. These have been difficult to analyse in the past but improvements in technology is making the use of big data more feasible.
