Income elasticity of demand (YED) measures the relationship between the quantity demanded of a

product to the change in income.

*graph*

YED = %change in quantity demanded / %change in income

YED focuses on inferior goods and necessary goods (normal goods).

Inferior good is a good that consumer buy less when income rise, leading to the YED is negative. For
instance, when income is low, people are able to buy bread and when income increases they are able to
buy more as standard of living rises. Therefore, the demand for bread decreases.

Normal goods good that even if the price changes, consumers are still afford to buy it, leading to the
YED is positive. For example, rice, Asian people cannot live without rice so when the income rises, they
would still buy rice. Hence, the quantity of rice demanded increases.