Unit 2.5 · Elasticities of Demand
Significance of YED Sign and Magnitude
AO2
Syllabus Requirement
Positive YED = normal goods; negative YED = inferior goods; YED > 1 = luxury, YED < 1 = necessity.
Assessment Objectives
AO2Application and Analysis
Summary
Income elasticity of demand (YED) measures how the quantity demanded of a good changes in response to changes in consumer income. The sign and magnitude of YED are significant as they indicate whether a good is normal or inferior and how sensitive demand is to income fluctuations, which is important for businesses and governments in planning and forecasting.