YED Income Elasticity of Demand
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Questions and Answers

What characterizes normal goods in relation to income elasticity of demand?

  • They have positive income elasticity. (correct)
  • They have zero income elasticity.
  • They are always luxury items.
  • They have negative income elasticity.

What is the income elasticity of demand for normal necessities?

  • Greater than +1
  • Less than 0
  • Between 0 and +1 (correct)
  • Exactly 1

If a consumer's income increases by 10% and their demand for fresh fruit rises by 4%, what is the income elasticity of demand?

  • +0.4 (correct)
  • +1.5
  • 0
  • +0.1

How do inferior goods behave as consumer income rises?

<p>Demand decreases. (D)</p> Signup and view all the answers

What does income elasticity of demand (YED) measure?

<p>The effect of changes in income on quantity demanded (B)</p> Signup and view all the answers

What is an example of an inferior good?

<p>Council-owned properties (B)</p> Signup and view all the answers

Which of the following statements about luxury goods is true?

<p>They have an income elasticity greater than +1. (C)</p> Signup and view all the answers

What occurs to the demand for inferior goods if consumer income decreases?

<p>Demand increases. (C)</p> Signup and view all the answers

What might occur if wages increase at a faster rate than inflation?

<p>An increase in overall consumer purchasing power (A)</p> Signup and view all the answers

What is a characteristic feature of superior goods?

<p>Demand rises disproportionately with income. (D)</p> Signup and view all the answers

What is indicated by a YED greater than +1?

<p>Demand rises more than proportionally to income changes (C)</p> Signup and view all the answers

What happens to consumer behavior when income does not keep up with inflation?

<p>Consumers may reduce their overall expenditure (D)</p> Signup and view all the answers

Inferior goods are characterized by which of the following?

<p>Decreasing demand as income rises (B)</p> Signup and view all the answers

If a consumer's income increases by 10% and they decide to purchase 15% more of a certain good, what can be said about that good?

<p>It is a luxury good with a YED greater than 1 (A)</p> Signup and view all the answers

Which of the following statements about income elasticity of demand is true?

<p>Luxury goods generally have higher YED values (C)</p> Signup and view all the answers

What does an income elasticity of demand of -0.15 for Majorca indicate about its nature as a good?

<p>It is an inferior good. (B)</p> Signup and view all the answers

In the calculation of income elasticity of demand, which factor primarily reflects the responsiveness of quantity demanded to income changes?

<p>Percentage change in quantity demanded (B)</p> Signup and view all the answers

Which of the following examples would likely have a positive income elasticity of demand?

<p>High-end electronics (B)</p> Signup and view all the answers

If the income elasticity of demand for Cheese is 0.53, what does this imply?

<p>Cheese is a necessity with low responsiveness to income changes. (C)</p> Signup and view all the answers

What is the expected behavior of demand when an individual's income increases significantly for a product with an elasticity of 2.60?

<p>Demand increases by a larger percentage than income. (B)</p> Signup and view all the answers

Which of the following destinations shows the highest income elasticity of demand among those listed?

<p>South Africa (C)</p> Signup and view all the answers

What could be inferred about the increase in food prices in relation to household income based on the provided information?

<p>Low-income households find it increasingly difficult to afford food. (B)</p> Signup and view all the answers

How is the calculated income elasticity of demand of an item interpreted when it equals 2?

<p>Demand increases by 2% for every 1% increase in income. (B)</p> Signup and view all the answers

Flashcards

Income Elasticity of Demand (YED)

YED shows how a change in income affects the quantity of a good or service demanded.

Normal Goods

Demand for these goods increases as income increases.

Inferior Goods

Demand for these goods decreases as income increases.

YED Formula

YED = (% change in quantity demanded) / (% change in income).

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Luxury Goods

Goods with a YED greater than +1. Demand increases more than proportionally to income increases.

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Income inelastic

A good or service with income elasticity YED close to 1. Demand changes the same amount as the income changes.

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Income

A factor affecting consumer demand; essentially, the amount of money a consumer makes.

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Inflation

A general increase in prices and fall in the purchasing value of money.

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Income Elasticity of Demand

Measures the responsiveness of demand to changes in income.

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Normal Necessity

A normal good with income elasticity between 0 and +1.

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Positive Income Elasticity

Demand increases when income increases.

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Negative Income Elasticity

Demand decreases when income increases.

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Income Elasticity Example

If income increases by 10%, and demand for fresh fruit increases by 4%, income elasticity is 0.4 (normal necessity).

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Negative Income Elasticity of Demand

A measure of how responsive the quantity demanded of a good is to a change in consumer income, with a negative value indicating that demand decreases as income rises.

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YED Calculation

Calculated as the percentage change in quantity demanded divided by the percentage change in income.

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Majorca Holiday YED (-0.15)

A negative YED for holidays to Majorca suggests that as income rises, demand for these holidays falls.

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Food Expenditure (2011/2007)

Food expenditure as a percentage of household income increased between 2007 and 2011, suggesting food may now be considered a necessity.

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Study Notes

YED Income Elasticity of Demand

  • YED measures the responsiveness of quantity demanded to a change in income.
  • It's crucial for understanding consumer behaviour.
  • YED = (% change in quantity demanded) / (% change in income)

Types of Goods Based on YED

  • Normal goods: Positive YED; demand increases as income rises.

    • Examples include fresh fruit, clothing, and cars
    • Necessities have an YED between 0 and +1, meaning that demand rises less than proportionately to income.

  • Luxury goods: High positive YED; demand rises more than proportionately to income.

    • Examples include luxury cars, fine wines, and designer goods

  • Inferior goods: Negative YED; demand falls as income increases.

    • Examples include cheaper brands of goods, second-hand clothes, and public transport.

Income Elasticity of Demand Examples

  • Luxury chocolates: High positive elasticity - demand rises significantly with increased income
  • Economy class travel: Low positive elasticity - demand rises slightly with increased income
  • Exclusive resorts: High positive elasticity - demand rises significantly with increased income
  • Own-label discounters: Low and negative elasticity (potentially) - demand may decrease with increased income
  • Urban bus transport: Low and negative elasticity (potentially) - demand may decrease with increased income
  • Business class travel: High positive elasticity - demand rises significantly with increased income
  • Fine wines and dining: High positive elasticity - demand rises significantly with increased income
  • Cigarettes: Low and negative elasticity (potentially) - demand may decrease with increased income
  • Economy class travel: Low and negative elasticity (potentially) - demand may decrease with increased income

Tasks

  • Construct lists of products showcasing positive/negative YED.
  • Illustrate demand curves to visually represent various categories of goods.
  • Calculate income elasticity of demand given a scenario.

Applications and Significance

  • Knowledge of YED is crucial for firms to anticipate shifts in demand.
  • Businesses adjust production and pricing strategies according to rising or falling consumer income.

Further Considerations

  • Specific YED values vary depending on the good and the income levels.
  • Economic conditions, like recessions, can also impact YED.

Additional Points

  • Changes in income influence demand for goods
  • Understanding YED is fundamental for businesses and economists
  • Income elasticity values indicate whether a product is a necessity, normal good or luxury good

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Related Documents

YED Income Elasticity of Demand 2015 AQA Economics PDF

Description

Explore the concept of Income Elasticity of Demand (YED) and its significance in understanding consumer behavior. This quiz covers different types of goods based on YED, including normal, luxury, and inferior goods, along with examples to illustrate these concepts.

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