Unit 2.5 · Elasticities of Demand
Income Elasticity of Demand (YED)
AO2AO4Diagram required
Syllabus Requirement
Measures the responsiveness of demand to a change in income. Differentiates between inferior, normal, and luxury goods.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
Summary
Income elasticity of demand (YED) measures how demand for a good or service changes in response to changes in consumer income. Understanding YED is important for analyzing consumer behavior, particularly in distinguishing between normal goods, which see increased demand as income rises, and inferior goods, which see decreased demand under the same conditions. This concept helps businesses and policymakers predict how changes in income levels can affect market demand.
