1.2.3 Income Elasticity of Demand

What is the Formula for income elasticity of demand?

Practice Qs (Income Elasticity of Demand)

What does YED measure?

YED measures how demand changes when income changes.

Necessities have P or N YED and what coefficient?

Have a positive YED that is between 0 and 1.

Luxuries have P or N YED and what coefficient?

Have a positive YED thats greater than 1.

What happens when income rises for Necessities?

As income rises, people buy a bit more, but not a lot more. E.g. Staple food

What happens when income rises for Luxuries?

As income rises, people buy much more of these products. E.g. holidays, designer.

What is Normal Goods?

A Normal good is a product that people buy more of when their income goes up and less of when their income goes down.

What are Normal goods? P or N and Coefficient?

Normal goods that are necessities will have a lower positive YED coefficient.

Inferior Goods have P or N YED and what coefficient?

Has a Negative YED and a Negative Coefficient

What are Inferior Goods?

An Inferior good is a product that people buy more of when their income goes down, and buy less of when their income goes up.

What are wealthier countries are likely to have?

Consumers with higher disposable income.

What will firms do to meet the needs of consumers with higher incomes?

Firms will produce superior products.

Practice Qs for YED)

Practice Qs for YED)