Income Elasticity of Demand

October 18, 2021 09:20 AM
Study time
Oct 21, 2021
Oct 22, 2021

DefineĀ IncomeĀ Elasticity of Demand (including the word:Ā ā€˜responsivenessā€™):

This is the measure of how much the demand for a flood changes when there is a change in the income of a consumer
Income Elasticity of Demand (YED) is calculated by:

UK average income rises from Ā£25k to Ā£30k and as a result demand forĀ 3DĀ TVs rises from 200,000 units to 300,000 units.Ā Calculate YED (show your working):

Change in QUantoty Demanded = 200,000 300,000 Ā¶ 300000 / 100000 =33.3%
Change in income = 25-30 K Ā¶ 30 / 5 = 16,6%
Is the demand forĀ 3DĀ TVsĀ incomeĀ elastic or inelastic?
It is Elastic. Demand falls by a lower Percentage then the Price rises.
Plot the demand curve based on the information aboveĀ (fully label the diagram):

In the UK, a survey was done which calculated that ā€˜normalā€™ lager had a YED of +0.6 whilst ā€˜premiumā€™ lager had a YED of +1.5. Using the data explain why this might be the case

This can be seen as a Engel Curve example. The more money somebody may have, the more they see normal larger as an inferior good, and decide to buy more luxury goods such a the premium lager.

True or False

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YED for a normal good should be negative
YED for a luxury good should be positive and greater than 1
YED for an inferior good should be negative
The London UndergroundĀ is estimated to have a YED +0.2. This is because it is income inelastic

In recent years, demand for French wine in China has increased significantly. Explain, using YED, why this is the case and estimate YED. You can use your phone, tablet, PC to help you

The YED had gone positive. people in CHona got richer and decided to buy more luxury whine from France, then their own inferior one.

Average weekly expenditure on cigarettes in the UK, in 2013, by gross decile group (in GBP)

Look at the chart above regarding the weekly consumption of cigarettes in the UK by gross decile group.
Does this chart suggest that cigarettes can be considered a