income elasticity of demand Flashcards
Define income elasticity of demand (YED).
A calculation used by a business to estimate how demand will change given changes in income.
What is a normal good?
A good for which consumer demand increases when income increases. Customers will demand more as income rises.
What is an inferior good?
A good for which demand falls as income rises.
What is the formula for income elasticity of demand?
% change in income
What is the formula for % change in price or quantity demanded?
New - old
——————- x 100
old
How is YED interpreted in numerical values?
YED measures the responsiveness of demand to a change in income
If the result is + the product is normal
If the result is - the product is inferior
What is a superior good?
A good for which demand increases as income rises.
What are the uses of income elasticity of demand to a business?
To help decide what products and services they should offer to increase sales in relation to economic growth.
