Income Elasticity of Demand (YED)

Question 1

what do changes in income result in?

Answer 1

changes to the demand for products

Question 2

what are businesses interested in?

Answer 2

how much the quantity demanded will change for different products

Question 3

what does YED reveal?

Answer 3

how responsive the change in quantity demanded is to a change in income

Question 4

how do you calculate YED?

Answer 4

% change in quantity demanded / % change in income

Question 5

is the YED value positive or neagtive?

Answer 5

both

Question 6

what is a good with a positive YED value considered to be?

Answer 6

a normal good

Question 7

what can normal goods be classified as?

Answer 7

necessities or luxuries

Question 8

what is a good with a negative YED value considered to be?

Answer 8

an inferior good

Question 9

how is a luxury good shown in numerical value?

Answer 9

> 1

Question 10

how are necessity goods shown in numerical value?

Answer 10

0-1

Question 11

how are inferior goods shown in numerical value?

Answer 11

<0

Question 12

what happens to demand when income falls for a luxury good?

Answer 12

demand rises

Question 13

what happens to in demand when income falls for a luxury good?

Answer 13

demand falls

Question 14

for a necessity when income changes what happens to the demand?

Answer 14

it is not very responsive (income inelastic)

Question 15

for an inferior good what happens to the demand when income rises?

Answer 15

demand falls

Question 16

for an inferior good what happens to the demand when income falls?

Answer 16

demand rises (negative income elasticity)

Question 17

what factors in the economy influence YED?

Answer 17

factors that change the wages of workers

Question 18

what is recession?

Answer 18

two quarters of negative economic growth

Question 19

what happens to wages during recession?

Answer 19

they usually fall

Question 20

what happens to demand for inferior goods during recession?

Answer 20

they rise

Question 21

what happens to demand for luxury goods during recession?

Answer 21

they fall

Question 22

what happens to the demand for luxury goods during economic growth and rising wages?

Answer 22

they increase

Question 23

what happens to the demand of inferior goods during economic growth and rising wages?

Answer 23

they decrease

Question 24

other than recession, economic growth and rising wages what other influenced on income are there?

Answer 24

minimum wage legislation, taxation, and increased international trade

Question 25

other than economic factors what else can YED be influenced by?

Answer 25

that nature of the good

Question 26

why is understanding YED useful for a business?

Answer 26

it can help them plan their production and products

Question 27

how will planning using YED benefit the business?

Answer 27

it will generate higher profits and have less exposure to down turns in the economy

Question 28

what does it mean for a business if that can determine YED for its products and can predict changes in incom?

Answer 28

they can plan whether to increase or decrease production

Question 29

what does YED help managers with?

Answer 29

financial planning

Question 30

when is production planning easier?

Answer 30

when year is inelastic, as demand is more consistent

Question 31

what are the different stages in the economy?

Answer 31

recession, recovery and growth

Question 32

what does having different stages in the economy mean for incomes?

Answer 32

they will fluctuate

Question 33

what are the stages in the economy know as?

Answer 33

the Business Cycle

Question 34

who will benefit form a recession stage in the economy?

Answer 34

people who produce inferior goods as demand increases

Question 35

what is a product portfolio?

Answer 35

the range of a product or service offered by a business

Question 36

how can having a product portfolio benefit a business?

Answer 36

it appeals to a wider range of income groups and income market segments