Lesson 10-Income Elasticity

Question 1

Define Income elasticity of Demand

Answer 1

YED is the responsiveness of demand to a change in the incomes of a consumer.

Question 2

What is the formula of YED?

Answer 2

Percentage change in Qd/Percentage change in income

Question 3

Define Income elastic

Answer 3

The percentage change in quantity demand is greater than the percentage change in income.

Question 4

Define Income inelastic

Answer 4

The percentage change in quantity demanded is less than the percentage change in income.

Question 5

What are Normal goods?

Answer 5

The demand for these goods will increase when income of consumer’s increase.

Question 6

What is the YED of necessities?

Answer 6

Between 0 and 1

Question 7

What is the YED of luxuries?

Answer 7

Greater than 1

Question 8

What are Inferior goods?

Answer 8

They are goods that have a low quality and demand decreases when income increases.

Question 9

What is the importance of YED for a firm?

Answer 9

Firms that sell inferior goods will find YED useful to prepare themselves for higher output levels during a recession when an increase in demand will be experienced.