Income elasticity of demand 1.2.5

Question 1

What is income elasticity of demand (YED) equation?

Answer 1

% change in quantity demanded / % change in consumer income

Question 2

Define of income elasticity of demand.

Answer 2

The responsiveness of quantity demanded to a change in consumer income.

Question 3

Define income elastic demand.

Answer 3

Demand is unresponsive to a change in incomes.

Question 4

YED elastic values

Answer 4

Greater than 1

Question 5

What is the Income inelastic demand figure?

Answer 5

Less than 1

Question 6

What is a normal good?

Answer 6

When demand for product increases when income increases.

Question 7

What are inferior goods?

Answer 7

When demand for a product decreases when incomes increase.

Question 8

Income elasticity of demand is determined by…

Answer 8

• Whether the good is a necessity or a luxury.
• The level is the income of a consumer.

Question 9

Income elasticity of demand is determined by whether the good is a necessity or a luxury, explain …

Answer 9

At a higher standards of living increase consumer incomes see additional demand tends towards luxury goods as demand for necessities is satisfied.

Question 10

Income elasticity of demand is determined by the level of income of a consumer, explain…

Answer 10

• Poorer consumers tend to spend their incomes in necessity items.
• As they become wealthier the YED for necessities move towards zero as consumer are satisfied with the among of the product.
• Normals goods that are necessities will have lower positive YED coefficients.
• As consumer incomes continue to increase they are likely to spend some of their incomes on luxuries.

Question 11

How standards of living effect YED?

Answer 11

• Wealthier countries are likely to have consumers width higher disposal incomes.
• This means that they have greater spending power are likely to use some of this greater income to buy luxury goods and services
• Therefore firms will produce superior products that meet the consumer needs.
• As global standards of living is increased we could expect to see on increased in demand for luxury goods and a movement away from inferior goods.

Question 12

Why might someone’s disposable incomes fall?

Answer 12

• Recession.
• Increase income tax.
• Benefit cuts.
• Retirement.
• Cut working hours.
• Demotion.