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.