Wednesday, September 24, 2014

Elasticity 3 - YED , Income elasticity of demand

Elasticity 3 - YED

YED - responsiveness of demand when consumers income changes.

Formula -
pajholden on YED

Ok, YED, after you have calculated your answer using the formula above, then you must interpret your answer.

Start with the sign:
  • if it's positive, it's a normal good
  • if it's negative, it's an inferior good
The absolute value shows the level of income elasticity of demand.
  • if the YED is 0 < YED < 1  = income inelastic
  • if YED > 1 = income elastic
2008 AP Microeconomics Exam
Answer (D) X is an inferior good and is a complement to Y.

Elasticity Cheat Sheet