Usefulness of YED

Usefulness of YED

1. Firms

   • Luxury Goods with YED > 1
     • MTP ↑ in DD
       • 2) Output strategy
         • Producers will ↑ O/P to ↑ TR
       • 1) Pricing strategy
         • Producers will ↑ prices to ↑ TR
   • Inferior Goods with YED < 0
     • MTP ↓ in DD
       • 2) Pricing strategy
         • ↓ prices → compensate the ↓ in dd
       • 1) Marketing strategies
         • Product mix & diversify production into gds with higher YED
       • 3) Output strategy
         • ↓ o/p to ↑ TR
     • 2) Segmenting of markets
       • Sell diff range of pdts → suit C of diff Y
         • 1) Sell necessities in mass-market locations
         • 2) Sell luxurious gds in high Y districts
   • Y ↑
     • Purchasing power ↑
   • 1) Responding to Y Δ

2. Govt

   • 1) Determine type of gds to produce
     • E.g housing indy
       • Recession: ↑ in dd of inferior gds, ↓ in dd of luxurious gds
         • ↑ SS of 3-room flats & ↓ SS of executive condos
   • 2) Forecast revenues for budget planning
     • E.g predict the extent of ↑ in DD for COEs during EG
       • → forecast COE px & Govt revenue
   • 3) Industrials SSP
     • Determine LT growth propsects of Indy
       • → guide decisions on which indy to allocate resources

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