Income Elasticity of Demand

Question 1

what is income elasticity of demand and what is the formula

Answer 1

refers to the responsiveness of demand to a change in customer income
Ey = %change in quantity
———————————
% change in income

Question 2

is their a relationship with products that are price elastic and those that are income elastic

Answer 2

usually products that are income elastic are also price elastic
products that are income INelastic are also price IN elastic

Question 3

WHat is a normal good and example

Answer 3

a good that if income increases, demand increases (gucci)

Question 4

Discuss normal goods to do with income elasticity (pos or neg) and coefficient

Answer 4

positive income elasticity (always Ey > 0)

Question 5

How can normal goods be further broken down state

coefficient and examples

Answer 5

• relatively income elastic ( Ey >1) - luxury good

- relatively income inelastic (0 < Ey < 1) - necessity good

Question 6

WHat is a inferior good and example

Answer 6

good that when income increases, demand decreases (homebrand)

Question 7

Discuss inferior goods to do with income elasticity (pos or neg) and coefficient

Answer 7

negative income elasticity (always Ey < 0)