Income Elasticity of Demand (YED) : measure of the responsiveness of quantity demanded to a change in income.
Percentage change in quantity demanded
= ____________________________________________________
percentage change in income
Normal Good : demand increases when income increases. (POSITIVE YED.)
Inferior Good : demand falls when income increases. (NEGATIVE YED.)
Luxury Good : demand increases more than proportionally when income increases. (YED >1)
Giffen Good : inferior good where demand increases as price increases.
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