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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
    • % change in quantity demanded / % change in income


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