YED's

Question 1

Income elasticities of demand (YED)

Answer 1

Responsiveness of demand to a change of income. It shows us if goods are inferior, normal or luxury and can also show income elasticity. Numerical value with no units.

Question 2

YED formula

Answer 2

% change in demand / % change in income

Question 3

YED answers

Answer 3

If answer is negative, it is an inferior good
If answer is positive but under 1, it is a normal good
If answer is over 1, it is a luxury good

Question 4

Inferior good

Answer 4

Negative YED. An increase in income leads to a decrease in quantity demanded of that good e.g. cheap clothing. With more income, better quality goods are bought

Question 5

Normal good

Answer 5

Positive YED that is less than one. Increase in income leads to an increased demand e.g. most food, clothing and appliances. With more income, you are more able to buy goods

Question 6

Luxury goods

Answer 6

Positive YED more than 1. A type of normal good where an increase in income leads to a bigger increase in demand e.g. high end goods. With more income you are able to buy expensive goods.