Th1.2: Income Elasticity of Demand (YED) Flashcards
1
Q
Define YED
A
the responsiveness of demand to a change in income
2
Q
Formula for YED
A
% change in income
3
Q
What good is it when YED < 0?
A
inferior good
4
Q
What good is it when YED > 0?
A
normal good
5
Q
What good is it when YED > 1?
A
luxury good
6
Q
In terms of elasticity, if a good’s YED is greater than one it is an…
A
elastic good
7
Q
In terms of elasticity, if a good’s YED is smaller than one it is an…
A
inelastic
8
Q
What does inferior good mean in terms of YED?
A
a rise in income will lead to a fall in demand
9
Q
What type of good is a luxury good?
A
a normal good
10
Q
What does normal good mean in terms of YED?
A
a rise in income will lead to a rise in demand for the good
11
Q
What is the significance of YED?
A
it is important for businesses to know how their sales will be affected by changes in the income of the population
