Income Elasticity of Demand- YED

Question 1

What is income elasticity of demand?

Answer 1

it measures the responsiveness of quantity demanded to a change in income

Question 2

What is the formula for income elasticity of demand?

Answer 2

% change in QD/ % change in income

Question 3

What does it mean if YED is positive?

Answer 3

the good is a normal good- both QD & Y will be positive/ negative because normal goods have a positive relationship between income and demand

Question 4

What does it mean if YED is negative?

Answer 4

the good is inferior- QD & Y will have different signs because inferior goods have an inverse relationship between income and demand

Question 5

What should you do when working out the elasticity of a good?

Answer 5

ignore the negative

Question 6

What are normal goods with a YED greater than 1 classified as?

Answer 6

normal luxuries (they are income elastic)

Question 7

What are normal goods with a YED less than 1 classified as?

Answer 7

normal necessities (they are income inelastic)