Pack 6

Question 1

How is income elasticity of demand calculated?

Answer 1

% change in quantity demanded ÷ % change in income.

Question 2

Distinguish between normal and inferior goods:

Answer 2

Normal good = An increase in income will lead to a rise in demand, and a fall in income will lead to a fall in demand. It will have a positive YED figure.

Inferior good = An increase in income will lead to a fall in demand, and a fall in income will lead to a rise in demand. It will have a negative YED figure.

Question 3

Give two examples of goods which are normal necessities and explain the YED figure that you would expect.

Answer 3

Toothpaste, water. YED = 0.3, positive figure below 1 as it’s a necessity and inelastic.

Question 4

Give 2 examples of goods which are normal luxuries and explain the YED figure that you would expect.

Answer 4

Cars, holiday abroad. YED = 5, positive and above 1 as it’s elastic.

Question 5

Give 2 examples of goods which are inferior goods and explain the YED figure you would expect.

Answer 5

Bus, camping.