Income Elasticity of Demand (YED) Flashcards
1
Q
What is YED?
A
it measures the responsiveness of demand following a change in income
2
Q
What are inferior goods?
A
as income increases, demand for some goods (inferior goods) decreases - consumers choose alternative products which are perceived to be of higher quality
3
Q
What are normal goods?
A
as income increases, demand will increase
4
Q
Equation for YED
A
percentage change in quantity demanded/percentage change in income
5
Q
What kind of answer will a normal good give?
A
positive answers
6
Q
What kind of answer will an inferior good give?
A
negative answers
7
Q
Which sub-categories are normal goods put into?
A
basic goods and luxuries
8
Q
What income elasticity will basic goods have?
A
between 0 and 1
9
Q
What income elasticity will luxury goods have?
A
more than 1
