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Mind Map of Income Elasticity of Demand

INCOME ELASTICITY OF DEMAND

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Mind Map of Income Elasticity of Demand

YED > 0 ⇒ Good

E.g. When Income Increases, Demand Increases.

YED < 0 ⇒ Good

E.g. When Income Increases, Demand Falls

Use for Firms

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 Inelastic
Change (fall/increase) in quantity demanded is proportionately
than change (fall/increase) in income.
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.

Definition

Responsiveness of of
a Good to a Change in ,
Ceteris Paribus.
Determinant

Formula

Percentage change in
Percentage change in