1.2.5 YED

Question 1

YED equation

Answer 1

%change in quantity demanded/ %change in income

Question 2

what does YED show us

Answer 2

responsiveness of quantities demanded to a change in income

Question 3

does increase in income cause demand for all goods to rise?

Answer 3

NOO

Question 4

for inferior goods what happens as income increases and what must YED be

Answer 4

demand decreases

YED must be negative

Question 5

for normal goods what happens to demand when income increases and what must YED be and be specific

Answer 5

as y increases d increases

YED must be positive

normal goods divided into luxuries and necessities

luxuries are elastic (bigger than 1)

necessities are inelastic (between 0 and 1)

Question 6

for the following YEDS what could each one be :

5
0.1
-2

Answer 6

luxury goods

necessity good

inferior good

Question 7

what happens in economic boom and recession

Answer 7

in boom :

incomes rise
demand for normal goods rise
firms should produce more normal

in recession:
incomes fall
demand for inferior goods will rise
firms should produce more inferior goods