Income Elasticity of Demand
Income elasticity of demand (YED) measures how quantity demanded changes as consumer income changes. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. YED indicates whether a good is normal (positive YED) or inferior (negative YED).
Real World
As average UK incomes rose through the 2010s, demand for budget supermarket own-brand baked beans fell while demand for premium brands like Heinz grew, illustrating negative YED for inferior goods.
Exam Focus
State the sign of YED (positive or negative) and its magnitude — both are needed for full marks on classification questions.
How well did you know this?