The difference between nominal and real income
Nominal income is the actual money amount you earn. Real income adjusts that figure for inflation, showing what your income can actually buy.
Formula
Real Income = (Nominal Income / Price Index) × 100
Real World
UK public sector workers received a 5% pay rise in 2023, but with CPI inflation running above 10%, their real income fell — meaning they could buy less despite earning more pounds.
Exam Focus
Always distinguish nominal from real in 'evaluate' questions; ignoring inflation is the most penalised omission at A-level.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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