Income Elasticity of Demand (YED)

Question 1

what is income elasticity of demand?

Answer 1

measure of the responsiveness of demand to a change in income

Question 2

what is real incomes?

Answer 2

provides an estimation of an individual’s actual purchasing power in the open market after accounting for inflation

Question 3

formula for YED

Answer 3

(% change in demand/ % change in income) X 100

Question 4

what is an inferior good?

Answer 4

one whose demand drops when people’s incomes rise

always have negative YED

Question 5

what is a normal good?

Answer 5

good that experiences an increase in its demand due to a rise in consumers’ income

always have positive YED

Question 6

factors that affect YED

Answer 6

• if the good is necessity or luxury
• level of income
• standards of living