1.2.4 Factors Influencing YED

• What does price elasticity of demand refer to?

  It refers to demand sensitivity to price changes.
• What is the definition of income elasticity of demand?

  It measures demand changes with income changes.
• What is the formula for calculating price elasticity of demand?

  Percentage change in quantity demanded / percentage change in price
• Give two examples of goods that might be income elastic.

  Luxury cars and high-end electronics.
• What happens to total revenue if the price of a product with a price elasticity of demand of -0.67 is reduced?

  Total revenue will decrease with price reduction.
• What are the factors influencing income elasticity of demand (YED)?

  • Luxuries: Goods desired if affordable.
  • Inferior goods: Cheaper goods with elastic demand.
  • Necessities: Basic goods needed by consumers.
• What is an example of a luxury item that consumers might buy if they could?

  Luxury cars are a common example.
• What is the YED value for luxury watches?

  Luxury watches have a YED of 0.2.
• What is the YED value for bread?

  Bread has a YED of 0.6.
• What is the YED value for sports cars?

  Sports cars have a YED of 1.8.
• What is the YED value for second-hand clothing?

  Second-hand clothing has a YED of -0.7.
• What is the YED value for organic vegetables?

  Organic vegetables have a YED of 1.5.
• What is the YED value for public transport tickets?

  Public transport tickets have a YED of -0.5.
• What is the significance of income elasticity of demand (YED) for businesses?

  • Helps forecast demand during economic changes.
  • Aids in inventory planning based on income forecasts.
  • Assists in market segmentation for targeted marketing.
• How can understanding income elasticity of demand help a business in its pricing strategy?

  It helps businesses adjust prices based on demand.
• How does a decrease in price affect demand for luxury goods?

  It may not significantly increase demand.
• What is one factor that could influence the price elasticity of demand for M&S clothing range?

  Brand loyalty can influence price elasticity.
• Why might demand for necessities be less elastic than luxuries?

  Necessities are essential and less sensitive to price.