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You are expected to explain/analyze (AO2) income elasticity of demand (YED) and the classification of products based on YED value (SL+HL), calculate (AO4) YED (SL+HL), draw (AO4) the 3 different Engel curves, and evaluate/examine (AO3) the importance of YED (HL)
Income elasticity of demand refers to how responsive the quantity demanded is for a good or service when income of consumers changes.
(By the way, Y means income. It's a Y instead of I because I stands for imports (but more on that in the Global chapter))
Remember any negative sign here! (Unlike PED)
The 3 types of YED (AO2)
The 3 types of YED (AO2)
Engel Curves for the 3 types of YED goods (AO4)
Engel Curves for the 3 types of YED goods (AO4)
Importance of YED (AO3) (HL)
Importance of YED (AO3) (HL)
For firms: Knowing how consumers are going to change their demand for your product following changes in their income is very useful for firms
Fast food and off-brand clothes tend to sell worse when people earn more, but can benefit from economic crises
High-end cars and airlines tend to sell much more when people earn more, but experience dramatic decreases during economic crises
In explaining changes in the sectoral structure of the economy: In order to explain this, you should be aware of the 3 sectors of an economy:
Primary sector: The harvesting of natural resources, such as farming or mining. As incomes rise, the importance of this sector tends to decrease, hence the sector as a whole has a negative YED.
Secondary sector: The manufacturing of goods, such as electronics factories. As incomes rise, this sector tends to grow, and therefore has a positive YED.
Tertiary sector: The provision of services, such as accounting or consulting. As incomes rise, this sector tends to grow, and therefore has a positive YED.
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