economics
- Created by: katier1234
- Created on: 14-11-19 08:07
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- Income Elasticity of Demand (YeD)
- YED- measures the responsiveness of demand to changes in income
- Economies grow, the average income tends to rise, firms can expect increasing demand for their goods and services
- if they know the income elasticity of demand, they can predict how many additional customers they can expect and therefore make plans to supply more
- A rise in income will typically lead to increased demand for normal goods e.g branded things
- There is a positive income elasticity of demand
- some goods and services actually suffer a fall in demand when incomes rise.
- This is known as inferior goods e.g own brands
- This is because when people feel richer they want to trade- up and buy more desirable brands
- This is a negative income elasticity of demand
- This is because when people feel richer they want to trade- up and buy more desirable brands
- This is known as inferior goods e.g own brands
- % change in quantity demanded / % change in income
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