Income Elasticity Of Demand

Question 1

What is the equation for income elasticity of demand?

Answer 1

YED= %change QD / %change Y(income)

Question 2

What is YED?

Answer 2

Income elasticity of demand measures how much QD will respond to a change in income.

Question 3

What is an inferior good?

Answer 3

An inferior good is an economic term that describes a good whose demand drops when peoples income rises. Vise versa

Question 4

What goods will have a negative YED?

Answer 4

Inferior goods

Question 5

What goods will have a positive YED?

Answer 5

Normal goods

Question 6

What is income inelastic

Answer 6

When a change in income leads to a small change in QD. A normal good is always income inelastic, when YED is between 0 and 1
Eg necessities

Question 7

What is income elasticity?

Answer 7

When a change in income leads to a greater change in QD. A normal good is always income elastic, when YED is between 1 and infinity
Eg luxury goods such as holidays