Income Elasticity Of Demand

Question 1

YED

Answer 1

Measures how much quantity demanded will respond to changes in income

Firms use it to understand how changes in income will affect them

%change in Qd
————————-
%change in Y

Question 2

Normal vs Inferior Goods

Answer 2

Normal goods will always have a positive YED

Inferior goods will always have a negative YED

Question 3

Income elastic, Inelastic and Normal Goods Relationship

Answer 3

Only Normal goods can be elastic or Inelastic

Question 4

Income Elastic

Answer 4

YED= 1 and infinity

Consumers demand is very responsive to changes in income

Question 5

Income Inelastic

Answer 5

YED= 0 to 1

Consumers demand is unresponsive to changes in income