This document discusses income elasticity of demand (YED), which measures how responsive demand is to changes in income. YED is calculated as the percentage change in quantity demanded divided by the percentage change in income. A positive YED indicates a normal good whose demand increases with income, while a negative YED indicates an inferior good whose demand decreases with income. The document provides examples of calculating YED and interpreting the results.

1. AS Economics
Income Elasticity
of Demand
Learning Objectives
To understand how changes in income
can affect the quantity demanded
To be able to calculate YED

2. Income Elasticity of Demand (YED)
YED measures the responsiveness
of demand to changes in income
Formulae:
YED =
Percentage change in the quantity demanded
Percentage change in income

3. Income Elasticity of Demand (YED)
YED measures the responsiveness of demand to changes in income
YED =
Percentage change in the quantity demanded
Percentage change in income
or
∆Q
Q
÷
∆Y
Calculate YED for each of the following:
1. An increase in average income of 12% causes a fall in demand for
Tesco Value products of 18%
2. A fall in average income from £22 000 to £20 000 per year causes a
fall in demand for Tesco Finest products from 8000 to 6000 units
Y

4. Income Elasticity of Demand (YED)
YED measures the responsiveness of demand to changes in income
YED =
Percentage change in the quantity demanded
Percentage change in income
or
Interpreting YED results:
Positive YED:
A normal good – as income rises the quantity demanded rises
E.g. most goods are normal goods
Negative YED:
An inferior good – as income rises the quantity demanded falls
E.g. value products, bus tickets
∆Q
Q
÷
∆Y
Y

5. Income Elasticity of Demand (YED)
YED measures the responsiveness of demand to changes in income
Percentage change in the quantity demanded
YED =
Percentage change in income
Normal Goods
Y
0
or
∆Q
Q
÷
Inferior Goods
Y
D1
Q
0
D1
Q
∆Y
Y

6. Income Elasticity of Demand (YED)
YED measures the responsiveness of demand to changes in income
YED =
Percentage change in the quantity demanded
Percentage change in income
Positive YED = normal good
or
∆Q
Q
÷
∆Y
Y
Negative YED = inferior good
1. Average income rises 4% demand for bus tickets falls 2%, train
tickets rise 6% and cars 12%. Calculate YED for each good.
2. Average income is £24 000, it has increased by 2.5%. The demand for
champagne increases 10% from 100 000 units. Calculate YED.
3. Beef has a YED of +4. Calculate the change in income that would
result in a 20% fall in demand for beef.

7. Income Elasticity of Demand (YED)
YED measures the responsiveness of demand to changes in income
YED =
Percentage change in the quantity demanded
Percentage change in income
Positive YED = normal good
or
∆Q
Q
÷
∆Y
Y
Negative YED = inferior good
1. Average income rises 4% demand for bus tickets falls 2%, train
tickets rise 6% and cars 12%. Calculate YED for each good.
2. Average income is £24 000, it has increased by 2.5%. The demand for
champagne increases 10% from 100 000 units. Calculate YED.
3. Beef has a YED of +4. Calculate the change in income that would
result in a 20% fall in demand for beef.