YED

• What is YED?


  Income Elasticity of Demand. It measures the degree of responsiveness of quantity demanded to a change in income
• YED= (%change for Qd for X)/(%change in real income)
• YED<0

  Inferior goods
• What has a negative YED?

  Inferior goods
• As income increases, what happens to the demand of an inferior good?


  demand for an inferior good decreases
• YED>1


  Luxury goods
• As income increases, what happens to demand of a luxury good?


  demand for a luxury good increases significantly
• Examples of inferior goods:

  • store bought brands
  • low quality goods
• Examples of Luxury goods

  • cars
  • designer items
• 0<YED<1

  Necessity
• What has a positive YED

  Necessities and luxury goods
• As income increases, what happens to demand of a normal good?


  demand for a normal good increases
• What are the 2 types of normal goods?

  Necessities and luxury goods