b) Income elasticity of demand

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6 Terms

1
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  • define income elasticity of demand

  • how sensitive the change in quantity demanded is to the change in real consumer income

2
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  • state the formula for YED

  • YED = (%ΔQD) / (%ΔY)

  • income elasticity of demand = percentage change in quantity demanded / percentage change in real consumer income

3
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  • state the type of good if YED < 0

  • define this type of good

  • state what the gradient of this type of good would look like

  • inferior good

  • increase in real consumer income → decrease in quantity demanded

  • gradient = negative

4
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  • state the type of good if 0 < YED < 1

  • state the income elasticity of this good

  • define this type of good

  • state what the gradient of this type of good would look like

  • normal good

  • relatively income inelastic

  • increase in real consumer income → smaller increase in quantity demanded

  • gradient > 1

5
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  • state the type of good if YED > 1

  • state the income elasticity of this good

  • define this type of good

  • state what the gradient of this type of good would look like

  • luxury good

  • relatively income elastic

  • increase in real consumer income → larger increase in quantity demanded

  • 0< gradient < 1

6
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  • state how a decrease in real consumer income affects YED

  • state how an increase in real consumer income affects YED

  • increase in QD for inferior goods + decrease in QD for normal and luxury goods

  • decrease in QD for inferior goods + increase in QD for normal and luxury goods