Income Elasticity Of Demand Flashcards
1
Q
What’s the formula for YED?
A
Percentage changes in quantity demanded by percentage changes in income
2
Q
What type of goods does the positive value of YED describe?
A
Normal goods
When YED > 1, elastic (Luxury goods)
When YED < 1, inelastic (Necessities)
3
Q
What type of goods does the negative value of YED describe?
A
Inferior goods
4
Q
What is VAT?
A
Value-added-tax
5
Q
Why don’t government target inelastic goods producers for raising tax revenue?
A
Because it’s essential for people and citizens can face difficulities if taxes are raised.
Taxes raise => production cost increase => price raise => demand decrease => difficulities in fulfilling basic needs
6
Q
Give an example target from government to raise tax revenue
A
Alcohol producers
