Income Elasticity of Demand

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9 Terms

1
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Income Elasticity of Demand

Measures the responsiveness of quantity demanded given a change in income.

2
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YED formula

% change in Quantity Demand/% change in Income

3
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Normal good

Positive relationship between income and demand (+ YED)
Income goes up, demand goes up too.

4
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Inferior good

Inverse relationship between income and demand (- YED)
Income goes up, demand goes town too.

5
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Normal good >1

Income elastic. When it’s income elastic it is normal luxury.

6
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Normal good <1

Income inelastic. When it’s income inelastic it’s a normal necessity.

7
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Inferior good >1

Income elastic.

8
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Inferior good <1

Income inelastic.

9
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Elasticity 0

Demand is perfectly inelastic.