Income Elasticity Demand

Define Income Elasticity of Demand

• YED measures the degree of responsiveness of quantity demanded for a good to a change in consumer's income, ceteris paribus

• YED measures the degree of responsiveness of demand for a good to a change in consumer's income, ceteris paribus

• YED measures the degree of responsiveness of consumer's income to a change in quantity demanded for a good, ceteris paribus

• YED measures the degree of responsiveness of consumer's income to a change in demand for a good, ceteris paribus

What type of good would have an YED = -4

• Luxury

• Necessity

• Inferior

What are inferior goods?

• Lower quality goods that we consume when we are on lower incomes

• Higher quality versions of goods that we consume more of as our incomes rise

• Our basic needs. Things we need to survive e.g. housing clothing, food, power, transport

• Goods that can be used in place of each other

• Goods that we consume/use together

What are necessities?

• Lower quality goods that we consume when we are on lower incomes

• Higher quality versions of goods that we consume more of as our incomes rise

• Our basic needs. Things we need to survive e.g. housing clothing, food, power, transport

• Goods that can be used in place of each other

• Goods that we consume/use together

What is the formula for IED/YED?

• Percentage change in QD / Percentage change in Income

• Percentage change in Income / Percentage change in QD

• New - Old / Old X 100

• No idea

Consumers demand more of this type of good when their income rises.

• Normal good
• Inferior good
• Elastic good
• Substitution good

If the income elasticity of market demand is negative, most consumers view the good as:

• a luxury good

• having many imperfect substitutes.

• an inferior good.

• a normal good.

When YED value is positive and the value is 0.5

• Normal Good

• Inferior Good

• Luxury Good

• Necessity Goods

A 10 percent increase in income has caused a 5 percent decrease in the quantity demanded. The income elasticity is

• +0.5

• -2.0

• +2.0

• -0.5.

Deb's income has just risen from $950 per week to $1,050 per week. As a result, she decides to increase the number of movies she attends each month by 5 percent. Her demand for movies is HINT: Need to calculate the YED

• income inelastic.

• income elastic

• represented by a vertical line

• represented by a horizontal line