Economics

• What does Income Elasticity of Demand measure?


  The relationship between a change in quantity demanded for a good and a change in income
• What is the formula for Income Elasticity of Demand (YED)?


  $YED =$$\frac{\text{percentage change in quantity demanded for } x}{\text{percentage change in real income}}$
• What does a low positive income elasticity (0-1) indicate about a good?


  It indicates that the good is a necessity
• What does a positive income elasticity between (0-1) closer to 1 indicate?


  It indicates that the good is a normal good
• What does a large positive income elasticity greater than 1 indicate about a good?


  It indicates that the good is a luxury good
• What does a negative income elasticity (less than zero) indicate about a good?


  It indicates that the good is an inferior good
• What type of products are considered inferior goods?

  Own label products
• What are the categories of goods based on income elasticity?

  • Necessities: low positive elasticity (0-1)
  • Normal goods: positive elasticity (0-1) closer to 1
  • Luxury goods: large positive elasticity (>1)
  • Inferior goods: negative elasticity (<0)