YED

Question 1

YED

Answer 1

Income elasticity of demand (YED)

Question 2

YED equation & definition

Answer 2

YED measures how much quantity demanded will change in response to a change in income.

YED = %△Qd/%△Y

Question 3

Normal goods (YED)

Answer 3

For normal goods (e.g. Ben & Jerry’s ice cream), demand increases when income increases, which means the YED for normal goods is positive.

Question 4

Inferior goods (YED)

Answer 4

For inferior goods (e.g. Sainsbury’s basics ice cream), demand increases when income decreases, which means the YED for inferior goods is negative

Question 5

Income elastic goods (or luxury goods) YED

Answer 5

When YED is between 1 and ∞. Income elastic goods are very responsive to changes in income and are likely to be luxury goods e.g. a rolex

Question 6

Income inelastic goods (or necessity goods)

Answer 6

When YED is between 0 and 1. Income inelastic goods are unresponsive to changes in income, and are likely to be necessity goods e.g. bread