Nature of good/ Degree of necessity 1) The YED for a good will be higher the more luxurious the good. ⭐ YED for high end private car is higher than those for low end private car.

The same good can be considered a luxury, normal good or a inferior good depending on the income of the consumer.

The YED will be higher the lower the level of income and vice versa

Formula YED = % of change in Demand / % of change in Income

With an increase in income, there is no change in the demand, ceteris paribus

1) Inferior goods 2) With an increase in income, there is a decrease in demand, ceteris paribus.

0<YED<1 1) Income inelastic 2) Necessities 3) With an increase in income, there will be a less than proportionate increase in the demand, ceteris paribus.

YED>1 1) Income elastic 2) Luxury goods 3)With an increase in income, there is a more than proportionate increase in demand, ceteris paribus

YED = 1 1) Unit income elasticity 2) With an increase in income, there is a proportionate increase in the demand, ceteris paribus

Changes in income level can help to project changes in tax revenue and other government policies

Targeting different income groups in different locations ( niche markets) ✏So that appropriate prices and quantities can be set to suit the demands of perspective income-level groups

Determines 1) Responses to changes in national income levels during economic boom or recession , dependent on type of good 2) For luxury goods, demand increases rapidly during an economic boom. Hence, firms may choose to increase production levels, make the product more price elastic through campaigning, stock accumulation and expansion. 3) For inferior goods, firms must do the reverse of luxury goods during economic boom.