Flashcards in YED Deck (12)
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
Negative YED values
⬆income (richer) → ⬇demand
⬇income (poorer) → ⬆demand
= Inferior goods
Positive YED values
⬆income (richer) → ⬆demand
⬇income (poorer) → ⬇demand
= Normal goods or luxury goods
Define Inferior Goods
type of good for which demand declines as the level of income or real GDP in the economy increases
Define Normal Goods
any good for which demand increases when income increases
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.
Normal Necessity Goods YED
If positive and inelastic YED (between 0 and 1)
Normal Luxury Goods YED
If positive and elastic YED (greater than 1)
Inferior Goods YED
Anything negative (elastic and inelastic)
% change in quantity demanded / % change in income
YED = 0
perfectly inelastic - no relationship between income and quantity demanded