4292119
Description
Flashcards by Jasmine Wells, updated more than 1 year ago
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Created by Jasmine Wells
over 8 years ago
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| Question | Answer |
| What is income elasticity of demand? | It is a measure of the responsiveness of demand to changes in income. |
| What is the formula for YED? | YED= Percentage change in quantity demanded/percentage change in income |
| What is the significance of YED in the case of a normal good? | YED is positive (YED>0) when demand and income changes in the same direction A positive YED indicates that the good is a normal good. |
| What is the significance of YED in the case of an inferior good? | A negative YED (YED<0) indicates the good is inferior Demand for the good and income moves in opposite directions. E.g. bus rides/ second hand cars |
| Describe YED in the case of necessities. | It is a good that has YED that is positive, but less than one. ie. 0<YED<1. - This means that the good has income inelastic demand. - Meaning that a percentage increase in income produces a significantly smaller percentage increase in quantity demanded. These goods can be categorised as necessities. |
| Describe YED in the case of luxuries. | If a good has YED>1, it has income elastic demand. - A percentage increase in income has a significantly larger percentage increase in quantity demanded and vice versa. |
| Describe necessities being luxuries for people with lower incomes. | Sometimes in the case of people having low incomes, even food and certain clothing can be considered as luxuries whereas it may be considered luxuries for those people with higher incomes. E.g. Fizzy drinks/coca-colas |
| During times of economic growth, describe effects of goods with income elastic demand. | For goods with income elastic demand (YED>1) this is a positive things as a percentage increase in incomes lead to a higher percentage increase in quantity demanded. |
| During times of economic growth, describe the effects of goods with income inelastic demand. | For goods with income inelastic demand,(0<YED<1) this can be a negative thing as percentage increase in incomes lead to a significantly lower percentage increase in quantity demanded. |
| Describe effects of income elastic goods during times of recession. | This may be a negative things for income elastic goods (YED>1), as they wil experience largest decline in sales. Percentage decrease in incomes will lead to a significantly larger percentage decrease in quantity demanded. |
| Describe effects on income inelastic goods during times of recessions. | If goods with YED<1 or YED<0, they may experience in increase in sales. |
| When an economy grows what occurs to the countries output? | Growth |
| As incomes rise, what two sectors of production benefit the most and why? | Secondary and tertiary. This shows that as incomes rise, demand for manufactured products and services rise more rapidly than demand for food. |
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