Income elasticity of demand
- Created by: Izzie
- Created on: 28-02-18 16:48
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- Income Elasticity of Demand (YED)
- For most products & services as incomes rise, quantity demanded also rises & vice versa.
- These are called normal goods
- They have a positive YED value
- For some products as income rises, quantity demanded falls & vice versa
- These are called inferior goods
- They have a negative YED value
- Luxuries are income elastic & have high positive YED values
- Necessities are income inelastic & have low positive YED values
- Recessions create problems as many people face falling incomes so sellers of luxury goods have to deal with falling sales
- In contrast sellers of inferior goods have to adjust production accordingly to meet rising sales
- Businesses selling inferior products tend to do well in a recession when incomes fall & consumer confidence is low
- Businesses selling luxury income elastic goods tend to do well when the economy is growing & many people have rising incomes
- For most products & services as incomes rise, quantity demanded also rises & vice versa.
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