Income Elasticity of Demand

Question 1

Income elasticity of demand=

Answer 1

Percentage change in quantity demanded/percentage change in real income

Question 2

Income elasticity of demand

Answer 2

Measures relationship between a change in quantity demanded for good X and a change in real income

Question 3

Real income

Answer 3

Your income taking into account any inflation in the economy(which reduces the value of your income)

Question 4

Normal luxuries income elasticity

Answer 4

Income elasticity > +1

Question 5

Normal necessities income elasticity

Answer 5

Low positive income elasticity - you spend more on the product as the income goes up, but not substantially more.
Income elasticity is greater than 0, but less than +1.

Question 6

What type of goods are inferior goods

Answer 6

Counter-cyclical goods - this means they are products whose demand varies inversely to the economic cycle i.e. demand rises in a recession(where real incomes are falling and wages are rising more slowly than prices).

Question 7

Furlough scheme

Answer 7

Money people were given to stay home during the pandemic, and not to go to work

Question 8

Poverty(UK)

Answer 8

Less than 60% of median income

Question 9

Differences of income elasticity between restaurants

Answer 9

Income elasticity of sit-down restaurants(where you sit and eat) is greater than for take away fast food restaurants.

Question 10

Differences in economic growth

Answer 10

In 2019, economic growth was much more ideal than today(2024), as the rich households in the UK spent more than £1000 per week(groceries, entertainment) and even more on sports admissions, subscriptions, leisure class fees and equipment(in 2019). Even people on the lowest incomes spent a lot more than those on the lowest incomes today spend(2024).

Question 11

Income-inelastic demand curve

Answer 11

Steeper than for income elastic goods