Income Elasticity of Demand (YED)
- 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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