YED measures the responsiveness in demand when there is a change in income:
%change in quantity demanded/%change in income
Normal goods are goods that have a positive YED, and inferior goods are goods that have a negative YED.
When income increases then demand for Normal goods increases, the more elastic a good is, reflects how much demand would rise.
Income inelastic: Is where goods for which a change in income produces a less than proportionate change in demand
Income elastic: os where goods for which a change in income produces a greater than proportionate change in demand
An example of a normal good is where income increase by 5%, this then leads to an increase of Apple Ipads by 8%, so remembering that negative and positive signs matter here, as a (+) sign means that the good is normal and if it is (-) sign it means that it is an inferior good, the YED is 1.6, this is YED elastic, so what does that mean for apple?
Well because it is a normal good:
- It tends to expand when income grows
- Apple will increase locating and advertising in high income areas
- they will do badly in a recession
And what if it was an inferior good that was effected?:
- They expand during recession
- Inferior goods will be more popular in low income areas
- Do well during recession
sahiljhamb 