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YED-Income elasticity of demand (YED) is a concept used to measure how…
YED-Income elasticity of demand (YED) is a concept used to measure how sensitive the quantity demanded of a particular good or service is to changes in consumer income.
Income Elastic
An income-elastic good is a type of product for which the demand increases significantly when consumer incomes rise.
As people's incomes increase, they tend to spend a larger portion of their income on these goods, resulting in higher demand.
If peoples' incomes rise, then an income elastic products demand will also rise i.e. if incomes increase by 15% then demand may rise 25%.
This is often the case with luxury travel such as Etihad Airways first class cabins. As people have more money, they are willing to spend more on luxury Income elasticity of demand (YED) is a concept used to measure how sensitive the quantity demanded of a particular good or service is to changes in consumer income.
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These first-class cabins can cost upwards of £8,000 for a flight. They have inflight chefs, 7-foot beds, showers and top of the range entertainment systems.
Income Inelastic
An income-inelastic good is a type of product for which the demand decreases when consumer incomes rise.
When incomes rise, demand for these goods tends to decrease.
If people’s incomes rise, then an income inelastic products demand will not rise in line with the increase in incomes.
Essential goods such as; eggs, bread and electricity are clear examples of income inelastic goods as demand does not change significantly when there is a change in income.
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Normal Goods or Inferior Goods-If the income elasticity of demand is negative, it means that as consumer income increases, the quantity demanded of the product decreases.
These are known as inferior goods. For these goods, consumers tend to shift to higher-quality alternatives as their incomes rise.
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