Income Elasticity of Demand (YED)

Question 1

What is income elasticity of demand?

Answer 1

Income elasticity of demand- measures responsiveness of demand to changes in income

Question 2

How do you calculate income elasticity of demand?

Answer 2

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

Question 3

What does the YED value tell us about the goods?

Answer 3

• Inferior 🚘 have a negative YED
• Normal 🚘 have a positive YED
  — Normal 🚘 with YED between 0 & 1- classed as income inelastic 🚘- necessities
  — Normal 🚘 with YED larger than 1- classed as income elastic 🚘- luxuries