Income Elasticity of Demand (YED)

Income Elasticity of Demand (YED) – Income Elasticity of Demand measures the responsiveness of the quantity demanded of a good to changes in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income: YED = % Change in Quantity Demanded % Change in Income YED= % Change in Income % Change in Quantity Demanded ​ Normal Goods: Positive YED; demand rises as income increases. Inferior Goods: Negative YED; demand falls as income increases. Luxury Goods: High positive YED; demand increases more than proportionally with income. Example: If a 10% rise in income causes a 15% increase in demand for smartphones, the YED = 15% ÷ 10% = 1.5, indicating that smartphones are a luxury good with high income elasticity.