YED

YED

a measure of the responsiveness of the quantity of a good demanded to changes in income

YED formula

YED = %changeQ/%changeY

YED > 0

Normal good

Normal good

demand for the good and income change in the same direction

YED < 0

Inferior Good

Inferior Good

demand for the good and income move in opposite directions

YED < 1

Necessity and Income Inelastic Demand

Necessity and Income Inelastic Demand

a percentage increase in income produces a smaller percentage increase in quantity demanded

YED > 1

Luxury and Income Elastic Demand

Luxury and Income Elastic Demand

a percentage increase in income produces a larger percentage increase in quantity demanded

Engel Curve

luxury —> necessity —> constant —> inferior

YED and Sectoral Economic Structure

less developed countries have a larger primary sector

more developed countries have a lower primary sector and higher tertiary sector