Income Elasticity of Demand (YED)

Question 1

What is the formula for Income Elasticity of Demand (YED)?

Answer 1

% change in quantity demanded divided by % change in income

Question 2

What is Income Elasticity of Demand (YED)?

Answer 2

The responsiveness of quantity demanded to a change in income

Question 3

What is income often measured in?

Answer 3

GDP per capita. This is the Gross Domestic Product (GDP) divided by population

Question 4

What is a good defined as when the YED is either positive or negative?

Answer 4

(+) positive = normal good, (-) negative = inferior good, 0 = no impact

Question 5

Name all 4 types of elasticities on the YED good spectrum?

Answer 5

< -1 = Inferior elastic, -1-0 = Inferior inelastic, 0-+1= Income inelastic, > +1 = Income elastic

Question 6

What happens during prosperity?

Answer 6

The sellers of normal goods aren’t benefitted much whilst consumers’ income increases and they can start to afford more luxurious goods.

Question 7

What happens during a depression period?

Answer 7

The demand for normal goods rapidly decreases and sellers are adversely affected. This results in demand for inferior products rising.