Income elasticity of demand

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  • 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

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