1.2.5 Income Elasticity of Demand (YED)

It is YED and not IED because the "i" in business is reserved for the word "investment"

Definition: YED

• calculation used by business to estimate how demand will change given change given changes in income

• as consumer incomes change, so do demands

• a business can measure how much demand for a product or service will be affected by a change in consumer income

Normal (necessity) goods

• normal goods are those for which consumer demand increases when income increases

• a good is NORMAL when consumers demand more as their incomes increase

• YED value would be YED > 0 (a POSITIVE value)

• Kellogg’s cornflakes might be 0.4 YED

Inferior goods

• inferior goods are products where demand decreases as income increases

• YED value for an inferior good will be YED < 0 (a NEGATIVE value)

• rrrr

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