Unit 1: YED

• What does YED stand for in economics?

  Income Elasticity of Demand
• Why is income considered a crucial determinant of demand in economics?

  Because it influences the purchasing power of consumers
• What does YED measure?

  It measures the responsiveness of quantity demanded to a change in income
• What is the formula for calculating YED?

  $YED =$$\frac{\text{Change in Quantity Demanded}}{\text{Change in Income}} \times 100$
• What does a positive YED indicate about a good?

  It indicates that the good is a normal good
• What is the relationship between normal goods and income?

  Normal goods have a positive relationship with demand and income
• What characterizes inferior goods in relation to income?

  Inferior goods have a negative relationship with demand and income
• What happens to the demand for normal goods as income increases?

  Demand for normal goods increases
• What is the effect of an increase in income on the demand for inferior goods?

  Demand for inferior goods decreases
• How does the demand for necessities differ from luxury goods in terms of income elasticity?

  Necessities have a lower income elasticity compared to luxury goods
• What does it mean if a good has an income elasticity of zero?

  It means there is no relationship between income and quantity demanded
• What are the characteristics of normal goods and inferior goods in relation to income elasticity?

  • Normal Goods:
  • Positive relationship with demand and income
  • Demand increases as income increases
  • Inferior Goods:
  • Negative relationship with demand and income
  • Demand decreases as income increases
• How does the demand curve shift for normal goods when income increases?

  The demand curve shifts to the right
• How does the demand curve shift for inferior goods when income increases?

  The demand curve shifts to the left
• What is the implication of a downward sloping demand curve for inferior goods?

  As income increases, quantity demanded decreases
• What is the implication of an upward sloping demand curve for normal goods?

  As income increases, quantity demanded increases
• What are the key differences in demand behavior between normal goods and inferior goods as income changes?

  • Normal Goods:
  • Demand increases with rising income
  • Positive income elasticity
  • Inferior Goods:
  • Demand decreases with rising income
  • Negative income elasticity