Income elasticity of demand (YED)

YED definition

A measure of the responsiveness of quantity demanded to a change in income

What does YED do

Tells us if we are working with normal or inferior goods

What is the positive relationship between luxury goods and YED

YED is strongly positive with luxury goods

What does YED value between 0 and 1 imply about a good

Normal good

What does YED value greater than one imply about a good

Luxury good

Definition of normal good

Demand will increase at each and every price as consumer incomes increase

Definition of inferior good

Demand will decrease at each and every price as consumer incomes increase

Normal good when YED is greater than one

Demand is income elastic - normal luxury

Normal good when YED is less than one

Demand is income inelastic- normal neccessity

Inferior good when YED is greater than one

Demand is income elastic

Inferior good when YED is less than one

Demand is income inelastic

For whatever good , YED is zero

Demand is perfectly income inelastic