1.2.5 Income elasticity of demand

How is YED calulated

% change in quantity demanded / % change in income

How is YED value expressed

Positive or negative

What does a YED value of 1 mean

For every 1% income changes demand changes by 1% in the same direction

What are the 3 types of goods?

How income elastic are each of them

Luxury good

Product with a highly positive YED

Normal good

Product with a slightly positive YED

Inferior good

Product with a Negative YED

What is a luxury good in terms of YED

A product with a highly positive YED

What two facors influence income elasticity

The economy

The type of good (Luxury, inferior)

How can changes in the economy affect income elasticity

Which goods rise and fall in demand in which situations

During a recession, demand for inferior goods rise and luxury goods fall

During ecomic growth, demand for lucury goods rise and infreior goods fall

How can knowing income elsticity benefit a business

A business can predict changes in income and plan an increase or decrease in production accordingly

They can also launch luxury/ inferior goods to not miss out on revenue when incomes rise/fall

Still learning (1)

You've begun learning these terms. Keep up the good work!