Lesson 10 - Income And Elasticities Flashcards
1
Q
What is the income elasticity of demand?
A
how demand responds to a change in income
2
Q
What is the equation for YED?
A
% change in QD / % change in income
3
Q
Negative YED =
A
inferior good
4
Q
Positive YED =
A
normal good
5
Q
YED >1
A
elastic demand (normal luxury)
6
Q
YED <1
A
inelastic demand
7
Q
What is zero income elasticity?
A
income has no effect on demand whatsoever
8
Q
Why does demand for inferior goods fall as income increases?
A
people switch the the better quality alternative (normal goods)
