30/09/15
Lesson 4: YED (Income elasticity of demand
Measure of how much the demand for a product changes when there is a change in the consumer's income.
Range of values for income elasticity of demand
- YED tells us whether the product is a normal or inferior good.
- % increase in quantity demanded is less than % increase in income, YED=income-inelastic.
- % increase in quantity demanded is greater than % increase in income, YED=income-elastic.
- Necessity goods=low income elasticity, demand will change very little if income rises.
- Superior goods=high income elasticity, demand increases as basic needs are met, examples...?
- Inferior goods=negative YED, demand decreases as income increases.