income elasticity of demand

• Income elasticity of demand measures the responsiveness of quantity demanded to a change in income
• The equation for income elasticity of demand is: (Percentage change in income) / (Percentage change in quantity demanded)

  False
• What is the abbreviation used for income elasticity of demand?

  YED
• To calculate a percentage change, you divide the difference between two numbers by the original
• Match the type of good with its relationship to income:

  Normal good ↔️ Positive relationship

  Inferior good ↔️ Inverse relationship
• Inferior goods have a positive relationship between income and demand.

  False
• What does a positive YED value indicate about a good?

  Normal good
• What type of normal good is associated with income elasticity greater than one?

  Luxury
• A normal necessity has a YED less than one.
• What does a YED of zero indicate?

  Perfectly income inelastic
• A YED greater than one for an inferior good means demand is income elastic
• A negative YED value means the good is an inferior good.
• What is the percentage change in income if average incomes increase from £20,000 to £30,000?

  50%
• If the quantity demanded of fast food meals decreases from 100 to 60, the percentage change is a 40%
• Fast food meals are an example of an inferior good.
• An income inelastic inferior good sees demand decrease by a greater percentage than the increase in income.

  False
• What is the YED for fast food meals if income increases by 50% and demand decreases by 40%?

  -0.8
• If a good has a YED of -0.8, it is an inferior good with income inelastic
• What is the percentage change in income if average incomes increase from £20,000 to £25,000?

  25%
• If the quantity demanded of furniture increases from 12 to 21, the percentage change is 75%
• Furniture items are an example of a normal good.
• If a normal good has a YED greater than one, it is classified as income elastic
• What is the YED for furniture if income increases by 25% and demand increases by 75%?

  3
• An income elastic normal good sees demand increase by a greater percentage than the increase in income.
• Match the YED value with its description:

  Positive ↔️ Normal good

  Negative ↔️ Inferior good

  Zero ↔️ Perfectly income inelastic
• In a YED diagram, income is plotted on the x-axis.

  False
• What type of demand curve is associated with inferior goods in a YED diagram?

  Downward sloping
• A steep demand curve in a YED diagram indicates income inelastic
• A shallow demand curve in a YED diagram shows income elastic demand.
• In a YED diagram, what happens to demand for a normal necessity as income increases?

  Increases proportionally less