Income Elasticity of Demand (YED)
Microeconomics
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.
Curves and Elements
inferior good
Inferior Good (YED < 0): Demand falls as income rises.
normal good
Normal Good (0 < YED < 1): Demand rises with income but less than proportionally.
luxury good
Luxury Good (YED > 1): Demand rises more than proportionally as income increases.
income axis
Income Axis: Measures changes in consumer income.
quantity axis
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.
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