Income elasticity of demand is the responsiveness in demand for a good when there is a change in income levels
YED = % change in quantity / % change in income
If 0-1 then it is inelastic. If it is 1+ then it is elastic.
If the answer is negative (-) then the good is an inferior good. An inferior god is one that as income decreases then demand increases. An example of this could be Tesco value goods.
If the answer is positive (+) then the good is a normal good. A normal good is one when when income rises so does the demand for the product. For example trainers.
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| Inferior good |
If 0-1 then it is inelastic. If it is 1+ then it is elastic.
If the answer is negative (-) then the good is an inferior good. An inferior god is one that as income decreases then demand increases. An example of this could be Tesco value goods.
If the answer is positive (+) then the good is a normal good. A normal good is one when when income rises so does the demand for the product. For example trainers.
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| Normal good |
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