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Business_A-level_Cie

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  1. business-and-its-environment

    enterprise
    6 主题
  2. business-structure
    6 主题
  3. size-of-business
    3 主题
  4. business-objectives
    3 主题
  5. stakeholders-in-a-business
    2 主题
  6. external-influences-on-business
    12 主题
  7. business-strategy
    10 主题
  8. human-resource-management
    human-resource-management-hrm
    8 主题
  9. motivation
    4 主题
  10. management
    2 主题
  11. organisational-structure
    5 主题
  12. business-communication
    5 主题
  13. leadership
    2 主题
  14. human-resource-strategy
    3 主题
  15. marketing
    the-nature-of-marketing
    7 主题
  16. market-research
    3 主题
  17. the-marketing-mix
    6 主题
  18. marketing-analysis
    5 主题
  19. marketing-strategy
    3 主题
  20. operations-management
    the-nature-of-operations
    3 主题
  21. inventory-management
    2 主题
  22. capacity-utilisation-and-outsourcing
    1 主题
  23. location-and-scale
    2 主题
  24. quality-management
    1 主题
  25. operations-strategy
    4 主题
  26. finance-and-accounting
    business-finance
    2 主题
  27. sources-of-finance
    3 主题
  28. forecasting-and-managing-cash-flows
    1 主题
  29. costs
    4 主题
  30. budgets
    1 主题
  31. financial-statements
    4 主题
  32. analysing-published-accounts
    6 主题
  33. investment-appraisal
    2 主题
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The concept of income elasticity of demand

  • Income elasticity of demand (YED) measures the responsiveness of demand for a product to a change in income levels

    • Businesses are interested in how much the quantity demanded will change for different products

  • When household incomes change, spending on goods and services will either increase or decrease, depending on the type of good or service it is

    • Normal good: A good where demand rises when income increases, e.g. restaurant meals or new clothes

    • Inferior good: A good where demand falls when income increases, e.g. instant noodles or bus travel

    • Luxury good: A good where demand increases more than proportionally as income increases, e.g. designer handbags or sports cars

Calculating and interpreting income elasticity of demand

  • The YED value can be positive or negative, and the value is important in determining the type of good

    • A good with a positive YED value is considered to be a normal good

      • Normal goods can be classified as necessities or luxuries

    • A good with a negative YED value is considered to be an inferior good

  • YED is calculated using the formula

text YED = end text fraction numerator percent sign space Change space in space quantity space demanded over denominator percent sign space Change space in space income end fraction space equals space fraction numerator percent sign triangle space in thin space QD over denominator percent sign triangle in space straight Y end fraction

Worked Example

An individual’s income falls from £450 to £405 per week. As a result, their demand for takeaway meals falls from 50 to 30 per week.

Calculate the income elasticity of demand (YED) for takeaway meals.

[4]

Step 1: State the YED formula

YED space equals space fraction numerator percent sign space change space in space QD over denominator percent sign space change space in space straight Y end fraction (1)

Step 1: Calculate the % change in QD

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