YED Flashcards
1
Q
What is YED?
A
Income elasticity of demand =
Measures the responsiveness of demand to changes in income
2
Q
YED calculation?
A
YED =
% change in quantity demanded
———————————————-
% change in income
3
Q
Positive correlation:
A
0 —> 1 = normal goods
1+ = luxury goods e.g foreign holiday
4
Q
Negative correlation:
A
Less than zero —> inferior good
Value baked beans…recession
(More in demand when incomes fall)
5
Q
Benefits of YED?
A
-allows to build chains of analysis
E.g if you identify a product is a luxury good and predict a recession is to come can suggest to decrease stock/workforce as you won’t need it
