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A diagram illustrating different values of income elasticity of demand (YED) and how quantity demanded responds to changes in income for inferior, normal, and luxury goods.
Inferior Good (YED < 0): Demand falls as income rises.
Normal Good (0 < YED < 1): Demand rises with income but less than proportionally.
Luxury Good (YED > 1): Demand rises more than proportionally as income increases.
Income Axis: Measures changes in consumer income.
Quantity Demanded Axis: Measures the quantity demanded of the good.
Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in consumer income.
For an inferior good, YED is negative (YED < 0), meaning that as income rises, quantity demanded falls.
For a normal good, YED is positive but less than 1 (0 < YED < 1), so quantity demanded rises with income but at a proportionally smaller rate.
For a luxury good, YED is greater than 1 (YED > 1), meaning quantity demanded increases more than proportionally as income rises.
The steeper the slope of the income–quantity relationship, the more responsive demand is to changes in income.
Explore other diagrams from the same unit to deepen your understanding
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A PPC diagram showing different levels of production efficiency and economic feasibility using combinations of consumer and capital goods.
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A refined circular flow model highlighting the roles of injections and withdrawals in determining national income and economic equilibrium.
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