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Mind Map of Income Elasticity of Demand

INCOME ELASTICITY OF DEMAND

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Definition

Responsiveness of of a Good to a Change in ,

Ceteris Paribus.

Formula

Percentage change in Percentage change in

Mind Map of Income Elasticity of Demand

YED > 0 GoodE.g. When Income Increases, Demand Increases.

YED < 0 GoodE.g. When Income Increases, Demand Falls

YED > 0 Demand is Income Elastic (Luxury) Change (fall/increase) in quantity demanded is proportionately

than change (fall/increase) in income.

YED < 0 Demand is Income InelasticChange (fall/increase) in quantity demanded is proportionately

than change (fall/increase) in income.

Determinant

Use for Firms

Expect that when income level increases, demand for normal/luxury goods will increase and demand for inferior goods will fall, & vice versa.Stock up on or package products to be like normal/luxury goods (YED > 0) if income level is increasing.Stock up on or package products to be like inferior goods (YED < 0) if income level is falling.