Topic 8- Income Elasticity

Question 0

Income elasticity demand (YED)

Answer 0

Is the sensitivity of demand for s product to a change in real income.

Percentage change in quantity demanded/percentage change in real income

Question 1

Normal good

Answer 1

-positive YED
-YED>0
-as income rises demand for a normal good rises, Ceteris paribus
E.g chocolate, TVs, mobile phones

Question 2

Luxury good

Answer 2

• Has a positive YED
• YED>1
• as income rises demand for the luxury good rises, Ceteris paribus.
• percentage change in demand is greater than percentage change in income

Question 3

Inferior good

Answer 3

• inferior good has a negative YED

- YED

Question 4

Necessity

Answer 4

• positive YED

- YED

Question 5

Inferior good definition

Answer 5

Cheapest and popular alternative products

Question 6

When is demand Income inelastic

Answer 6

Whenever YED is between 0 and +1

-when the change in real income has led to a less than proportionate change in demand.

Question 7

Normal good demand and income diagram

Answer 7

Income  |               .
               |             .
               |          .
               |      .  
               |  .      
               |\_\_\_\_\_\_\_\_\_\_\_\_
                      Quantity demanded of product

Question 8

Inferior good demand and income diagram

Answer 8

Income  |    .           
               |       .      
               |          .
               |             .
               |               .
               |\_\_\_\_\_\_\_\_\_\_.\_\_
                      Quantity demanded of product