YED

YED

1. Definitions

   • Income Elasticity of Demand
     • The responsiveness of demand to a change in income.
   • Income Elastic Demand
     • A change in income results in a greater change in demand (Demand is greater than income).
   • Income Inelastic Demand
     • A change in income results in a smaller change in demand (Demand is smaller that income).

2. Formula

   • Change in quantity Demand/Original quantity demand x 100
   • Change in income/Original income x 100
     • %change in quantity demanded/ %Change in income
       • If the answer is above 1 then it is elastic
       • If the answer is below 1 then it is inelastic

3. Examples of Inelastic Products

   • Fuel
   • Cigarettes
   • Iphones

4. Factors influencing Income Elasticity of Demand

   • How much of a luxury item is the product
   • The nature of the products e.g. Cigarettes are addictive
   • How essential the item is e.g. Fuel is a necessity

5. Examples of Elastic Product

   • Luxury Items
   • Coke/ Pepsi
   • Clothing