Calculating Income Elasticity of Demand: Examples and Formulas

The video tutorial explains the concept of income elasticity of demand (YED) using examples. It covers how to calculate percentage changes in demand and income, interpret YED values, and identify inferior goods. The tutorial also includes an advanced example requiring formula manipulation and introduces the YED elasticity triangle as a tool for simplifying calculations.

What is the formula for calculating income elasticity of demand (YED)?

• Percentage change in demand divided by percentage change in price

• Percentage change in price divided by percentage change in demand

• Percentage change in demand divided by percentage change in income

• Percentage change in income divided by percentage change in demand

In the example with John, what was the percentage change in his income?

• -20%

• -30%

• -40%

• -10%

If a good has a negative YED value, what type of good is it considered?

• Inferior good

• Luxury good

• Giffen good

• Normal good

What happens to the quantity demanded of an inferior good when income decreases?

• It decreases

• It remains the same

• It increases

• It fluctuates randomly

In the example with Iqbal, what is the percentage change in demand if the YED is 4 and income increases by 25%?

• 50%

• 100%

• 75%

• 25%

What is the new quantity of films Iqbal purchases after his income increases by 25%?

• 40 films

• 25 films

• 30 films

• 35 films

How does the YED elasticity triangle help in calculations?

• It helps identify the type of good based on YED

• It provides a visual representation of demand curves

• It predicts future demand based on past data

• It simplifies the calculation by showing the relationship between variables