Income elasticity of demand - YED

Question 1

Income elasticity of demand

Answer 1

The responsiveness of a change in demand to a change in income

Question 2

Formula

Answer 2

YED = %change in quantity demanded / %change in income

Question 3

Inferior goods

Answer 3

Demand falls as incomes rise.
YED<0
e.g. Tesco value baked beans are switched to Heinz baked beans

Question 4

Normal goods

Answer 4

Demand increases as incomes rise.
YED>0
E.g. Restaurant meals

Question 5

Luxury goods

Answer 5

An increase in income causes an even bigger increase in demand. YED>1
E.g. holidays