Income Elasticity of Demand (YED)

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  • Created by: LML09
  • Created on: 25-05-15 17:10
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  • Income Elasticity of Demand (YED)
    • Measures the responsive-   ness of quantity demanded to a change in income
    • YED= %change in quantity demanded divided by %change in price
    • Greater than 1
      • Income elastic- change in income causes a big change in quantity demanded
    • 1
      • Unitary income elasticity- change in income causes same change in quantity demanded
    • Between 0 and 1
      • Income inelastic- change in income causes small change in quantity demanded
    • Normal goods have a positive YED
      • As income rises, quantity demanded increases and as income falls, quantity demanded decreases
    • Inferior goods have a negative YED
      • As income rises, quantity demanded decreases and as income falls, quantity demanded increases
    • Why is YED important?
      • Businesses need to be able to react for the demand to rise or fall, in order to adjust production accordinly

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