yed

• What does income elasticity of demand measure?

  Responsiveness of quantity demanded
• Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income
• Steps to calculate the percentage change in income

  1️⃣ Subtract the original income from the new income

  2️⃣ Divide the difference by the original income

  3️⃣ Multiply the result by 100
• An inferior good has an inverse relationship between income and demand
• Match the income elasticity of demand (YED) value with the type of good:

  Positive YED ↔️ Normal good

  Negative YED ↔️ Inferior good

  YED > 1 ↔️ Income elastic good

  YED < 1 ↔️ Income inelastic good
• What does a YED value greater than one indicate for a normal good?

  Demand is income elastic
• If a normal good has a YED value less than one, it is considered a necessity.
• For an inferior good with a YED greater than one, demand is income elastic
• What does a YED value of zero indicate?

  Demand is perfectly income inelastic
• A positive YED value always indicates a normal good.
• What is the percentage change in income if average incomes rise from £20,000 to £30,000?

  50%
• If the quantity demanded of fast food meals falls from 100 to 60 after a 50% increase in income, the YED is -0.8
• What type of good are fast food meals in Example 1?

  Inferior
• For an inferior good, a YED value less than one means demand is income inelastic.
• If incomes increase by 25% and the demand for furniture items increases by 75%, the YED is 3
• What type of good are furniture items in Example 2?

  Normal luxury
• Match the YED diagram feature with the corresponding concept:

  Downward-sloping curve ↔️ Inferior good

  Upward-sloping curve ↔️ Normal good

  Steep curve ↔️ Income inelastic demand

  Shallow curve ↔️ Income elastic demand