Income elasticity of demand (YED)

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Last updated 7:30 PM on 10/18/26
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9 Terms

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Income elasticity of demand (YED)

Measures how responsive quantity demanded is to a change in consumer income.

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YED formula

Percentage change in quantity demanded divided by percentage change in income.

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Inferior good and YED

YED < 0; quantity demanded falls when income rises.

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Normal necessity and YED

0 < YED < 1; quantity demanded rises proportionally less than income.

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Normal luxury and YED

YED > 1; quantity demanded rises proportionally more than income.

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YED = 0

Quantity demanded does not respond to a change in income.

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YED = +1

Quantity demanded changes by the same percentage as income; unit income elastic.

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YED sign

Keep the sign: negative indicates an inferior good, positive indicates a normal good.

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YED worked example

Income rises 10% and quantity demanded rises 15%; YED = 15 ÷ 10 = +1.5, a normal luxury.