YED Flashcards
1
Q
Define income elasticity of demand (YED)
A
- measures degree of responsiveness
- of demand
- to changes income of consumers (NPD)
- ceteris paribus
2
Q
Measurement of YED
A
% change in Qdd of good/ % change in consumers’ income
3
Q
Positive YED (sign)
A
- income rise/fall
- demand for good rise/fall (normal good)
- ceteris paribus
- good has positive income elasticity of demand
4
Q
Negative YED (sign)
A
- inverse relationship
- income rise/fall
- demand for good fall/rise (inferior good)
- ceteris paribus
- good has negative income elasticity of demand
5
Q
Demand is income inelastic
A
- YED more than 0, less than 1
- change in consumers’ incomes
- less than proportionate change in demand for good
- Normal good: Necessities
- limited need to buy more when SOL/income rises
- e.g. fresh veg
6
Q
Normal goods
A
- Necessities
- Luxury
7
Q
Demand is income elastic
A
- YED more than 1, less than infinity
- change in consumers’ income
- more than proportionate change in demand
- Normal good: luxury
- can make do w/o it (when income, consumer confidence falls)
- confidence to buy big-ticket items (income rise)
8
Q
Engel curve
A
- shows relationship btwn income and demand
- amt of good demanded at different income lvls
9
Q
Demand income elastic (Engel curve)
A
- YED more than 1
- straight line cuts Y-axis/income axis, gentler
- more than proportionate change
- Normal good: Luxury
10
Q
Demand income inelastic (Engel curve)
A
- 0
11
Q
Engel curve (YED<0)
A
- inferior good
- inverse relationship
