income-and-cross-elasticities-of-demand

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Defining & Calculating Income Elasticity of Demand (YED)

Changes in income result in changes to the demand for goods/services
- Economists are interested in how much the quantity demanded will change for different products
Income elasticity of demand (YED) reveals how responsive the change in quantity demanded is to a change in income
YED can be calculated using the following 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

A consumer’s income rises from £100 to £125 a week. They originally consumed 12 bagels at the local bakery, but this increased to 15 bagels a week.

Calculate the YED of the bagels

Step 1: Calculate the % change in QD

$percent sign triangle QD space equals space fraction numerator 15 minus 12 over denominator 12 end fraction space cross times 100 percent sign triangle QD space equals space 25 percent sign$

Step 2: Calculate the % change in Y

$begin mathsize 16px style percent sign triangle straight Y space equals space fraction numerator 125 space minus space 100 over denominator 100 end fraction space straight x space 100 percent sign triangle straight Y space equals space 25 percent sign end style$

Step 3: Insert the above values in the YED formula

<img alt=”PED space equals space fraction numerator percent sign triangle space in thin space QD over denominat

Economics-A-level-Aqa

income-and-cross-elasticities-of-demand

Defining & Calculating Income Elasticity of Demand (YED)

Worked Example

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