YED Income Elasticity of Demand

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  • Created by: Simone
  • Created on: 05-01-14 11:44
Define YED
measures the responsiveness of quantity demand to changes in consumer incomes
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Is YED positive or negative?
both; + increase in demand/ - decrease
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If a product has a negative YED this means
it is an inferior good
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YED is inferior/necessity =
inelastic
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If a product has a positive YED this means
it is a normal good
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what does a luxury good have to be?
+ (normal) and greater than 1
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YED is luxury good =
elastic
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What does a necessity good have to be?
+ (normal) and less than 1
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if YED is 0
demand unchaged
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Business Relevance of YED
1. estimates of YED can help to predict future demand 2. helps firms to decide what to produce in the future 3. firms with inferior may seek to change their image to become superior goods
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Card 2

Front

Is YED positive or negative?

Back

both; + increase in demand/ - decrease

Card 3

Front

If a product has a negative YED this means

Back

Preview of the front of card 3

Card 4

Front

YED is inferior/necessity =

Back

Preview of the front of card 4

Card 5

Front

If a product has a positive YED this means

Back

Preview of the front of card 5
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