income elasticity of demand

Question 1

income elasticity of demand YED

Answer 1

%change in q demanded/ %change in Y income
measures how much quantity demanded will respond to a change income

Question 2

income elasticity of demand : calculation example

Answer 2

WRITE EQUATION
YED=%change in Q D/ %change in INCOME
top half-%change in QD
first we do the actual change new quantity demanded minus old quantity demanded
eg 640-800 = -160
to covert this to percentage we take our value
-160/divide by original quantity demanded (800) and *by 100
so -160/800 x 100 =-20%

top of formula done

then bottom bit we do change in cnome
change = -2,400 (21,600-24,000)
%change= -2,400/original(24/00) x 100 = -10%

-20/-10= 2

Question 3

yed: inferior goods
positive? negative?
what will happen to demand?

Answer 3

if income falls for an inferior good demand will increase therefore If consumers demand more inferior goods, % change in quantity demanded will be positive whereas the bottom is negative therefore our YED will be negative overall
yed is always negative for inferior goods

where

Question 4

normal goods

Answer 4

for normal goods if incomes rise percentage change for incomes will be positive (rising)
additionally to this percentage change in quantity demanded will rise and became positive
leaving to a positive value as if income rises both factors (quantity and percentage go up) leading to a positive being divided by a positive
and if income goes down both factors will decrease (quantity and percentage go down) leading to a negative being divided by a negative
both leading to positive values