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Flashcards in YED Deck (12)
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1

Income Elasticity of Demand (YED)

YED is a measure of the percentage change in quantity demanded from a percentage change in income.
- YED simply measures how income affects the demand.
- It therefore shows how demand changes as income changes.
- This reveals the type of product: inferior goods, normal goods, luxury goods

2

Negative YED values

⬆income (richer) → ⬇demand
⬇income (poorer) → ⬆demand
= Inferior goods

3

Positive YED values

⬆income (richer) → ⬆demand
⬇income (poorer) → ⬇demand
= Normal goods or luxury goods

4

Define Inferior Goods

type of good for which demand declines as the level of income or real GDP in the economy increases

5

Define Normal Goods

any good for which demand increases when income increases

6

Define Luxury Goods

a good for which demand increases more than proportionally as income rises, and is a contrast to a "necessity good", where demand increases proportionally less than income.

7

Normal Necessity Goods YED

If positive and inelastic YED (between 0 and 1)

8

Normal Luxury Goods YED

If positive and elastic YED (greater than 1)

9

Inferior Goods YED

Anything negative (elastic and inelastic)

10

YED formula

% change in quantity demanded / % change in income

11

YED = 0

perfectly inelastic - no relationship between income and quantity demanded

12

YED graphs

- Income on the y axis
- Quantity demanded on the x axis
- Normal goods - upwards sloping
- Inferior goods - downward sloping
- inelastic - steeply sloping - YED < 1
- elastic - gently sloping - YED > 1