YED Flashcards

Flashcards on Income Elasticity of Demand (YED)

YED

Income Elasticity of Demand. It measures the effect on demand of a change in consumers’ income.

Inferior Goods

Goods for which demand decreases as consumer income rises.

Normal Goods

Goods for which demand increases as consumer income rises.

Luxury Goods

Goods for which demand increases significantly as consumer income rises.

YED Calculation Importance

Businesses use YED values to estimate how demand will change given changes in consumer income levels, helping them forecast what goods to produce.

YED Formula

% Change in Quantity Demanded / % change in Consumer Income

% Change Formula

(New - Old) / Old x 100

Indicates an inferior good.

Interpreting a Negative YED Value

Indicates a normal good.

Interpreting a YED Value Between 0 and 1

Indicates a luxury good.

Interpreting a YED Value Larger Than 1