The relationship between income elasticity of demand and normal and inferior goods
Income elasticity of demand measures how much demand for a good changes when consumer income rises or falls. Normal goods see demand rise with income; inferior goods see demand fall.
Formula
YED = %ΔQd ÷ %ΔY
Real World
During the 2008 financial crisis, UK consumers' real incomes fell and demand for Lidl and Aldi (inferior-good supermarkets) surged, while demand for Waitrose fell — illustrating a negative YED.
Exam Focus
Always state the sign and interpret it — positive YED = normal good, negative YED = inferior good — examiners expect both the number and its meaning.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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