1.2.5

• What is the purpose of YED in business?

  To understand demand changes with income
• How is YED calculated?

  Using the formula for percentage changes
• What does a positive YED value indicate about a good?

  It is a normal good
• What are the classifications of goods based on YED values?

  • > 1: Luxury goods
  • 0 - 1: Necessities
  • < 0: Inferior goods
• What happens to demand for luxury goods during economic growth?

  Demand increases
• How does a recession affect demand for inferior goods?

  Demand for inferior goods rises
• How can businesses use YED for production planning?

  To determine resource needs based on demand
• Why is it easier to plan production when YED is inelastic?

  Demand is likely to be more constant
• How does the Business Cycle affect product planning?

  • Recession: Higher demand for inferior goods
  • Recovery: Demand for normal goods increases
  • Businesses adjust product ranges accordingly
• What is the significance of understanding YED for businesses?

  Helps in planning production and profits
• How do minimum wage legislation and taxation influence YED?

  They affect consumer income and demand
• What is the formula for calculating YED?

  YED = % change in QD / % change in Y
• If a good has a YED of 0.5, what type of good is it?

  Necessity
• What does a YED value of less than 0 indicate?

  It is an inferior good
• What is the impact of economic growth on luxury goods?

  Demand for luxury goods increases
• What is the effect of a 10% fall in income on demand for normal goods?

  Demand typically falls
• How can businesses respond to changes in YED?

  By adjusting their product offerings
• How does YED help in financial planning for businesses?

  It predicts demand changes with income