Income elasticity of demand (YED)

Question 1

Define income elasticity of demand?

Answer 1

YED measures the responsiveness of quantity demanded given a change in income.

Question 2

how do you calculate income elasticity of demand?

Answer 2

this is where you calculate the percentage change in quantity demanded/quantity change in price

to calculate the percentage change you do difference/originalx100
remember you que before you pee to remember.

Question 3

what is the main role of YED?

Answer 3

it indicates whether we are working with inferior goods and normal goods.

Question 4

what does normal good mean?

Answer 4

Normal good has a positive relationship as incomes rise the demand will rise e.g organic pasta and noodles the demand for these products will rise since income is rising.

Question 5

what does inferior goods mean?

Answer 5

Inferior goods have an inverse relationship so it has a negative effect, where if the income was to rise the demand will go down and vice-versa, e.g canned veggies or soups.

Question 6

when you calculate yed, if the figure is positive what does this say?

Answer 6

if the figure is positive it states that it is a normal good.

Question 7

when you calculate YED, if the figure is negative what does this mean?

Answer 7

if the figure is negative it is an inferior good

Question 8

when you calculate the elasticity of normal goods if YED is greater than one what does this mean?

Answer 8

This means that demand is income elastic, which means that as incomes rise the demand for normal goods will increase by a huger proportion, so we can say that it’s a normal luxury since as the income of consumers rise the demand will increase by a higher amount for luxury items.

Question 9

when you calculate YED and it is less than one what does this mean for normal goods?

Answer 9

when it is less than 1 this means that demand is income-inelastic so as incomes are rising the demand will rise by a smaller proportion, it’s a normal necessity since consumers become richer.

Question 10

for inferior goods if it is greater than one what does this mean?

Answer 10

demand is income elastic

Question 11

for inferior goods, if it is less than one what does this mean?

Answer 11

demand is income inelastic

Question 12

for inferior goods when it is 0 what does this mean?

Answer 12

demand is perfectly income elastic this applies to inferior/normal goods.