Importance of YED (HL Only)
Elasticities of Demand
AO3·HL
Syllabus requirement
For firms: planning product lines and marketing strategies. For governments: understanding sectoral shifts during economic growth.
Assessment objectives
AO3 Synthesis and Evaluation
Higher LevelThis topic is assessed at HL.
Summary
This topic explains why income elasticity of demand (YED) matters for firms, governments and for long-term sectoral change as real incomes change. It shows how differing YED values cause demand for inferior, necessity and luxury goods to respond differently during booms and recessions, and how that shapes which sectors (primary, secondary, tertiary) expand or contract as an economy grows.
