YED Flashcards
How can income be expressed in a number of ways
- gross income
- disposable income
- income per capita
- real household disposable income
What is gross income
Total income before any deductions such as income tax
What is disposable income
Gross income adjusted for direct taxes and welfare benefits
What is income per capita
Income per head of population
What is real household disposable income
Disposable income adjusted for the effects of inflation
YED of normal goods
Positive YED (as income rises more is demanded)
YED of normal necessities
YED between 0 and 1
YED of luxury goods and services
YED of >+1 (demand rises more than proportionate to a change in income)
YED of inferior goods
Negative YED (demand falls as income rises)
When do inferior goods or services typically exist
Where superior goods are available if the consumer has the money to be able to buy it
What goods is the YED strongly positive for
- fine wines and holidays
- sports cars
- consumer durables (smart phones etc)
- sports and leisure facilities
For what goods are YED lower for
- staple food products
- mass transport
- beer and takeaways
- YED is negative for cigarettes and urban bus services
When can YED vary
Within a product range e.g. the YED for own-label foods in supermarkets is less for the high-value ‘finest’ food ranges
How do businesses make use of estimates of YED
Help firms predict the effect of an economic cycle on sales.
Luxury products with high YED see greater sales volatility over the business cycle than necessities where demand from consumers is less sensitive to changes in the cycle.
