Unit 2.5 · Elasticities of Demand
Income Elasticity of Demand (YED)
AO2AO4Diagram required
Syllabus Requirement
Measures the responsiveness of demand to a change in income. Differentiates between inferior, normal, and luxury goods.
Assessment Objectives
AO2Application and Analysis
AO4Use of Appropriate Skills
Summary
Income elasticity of demand (YED) indicates how demand for a product changes in response to changes in consumer income. Understanding YED helps identify whether goods are normal, inferior, necessities, or luxuries, which is important for businesses and policymakers in making informed decisions.