1. AS Unit F581:
Markets in action
Competitive markets and
how they work:
Income elasticity of
demand (YED)

2. Definition and formula
Definition
The responsiveness of quantity
demanded to a change in income
Formula
percentage change in quantity demanded
percentage change in income

3. Task 1
6)
Work in pairs
Decide what impact higher
income might have on
quantity demanded for each
of the goods represented

7. Task 2
6)
Work in pairs
How might the income
elasticity of demand vary
for the chocolate
represented below?

8. Terminology (1)
‘Normal’ goods
Where higher income leads to higher
quantity demanded
YED is positive (+)
‘Inferior’ goods
Where higher income leads to
lower quantity demanded
YED is negative (-)

9. Terminology (2)
Income elastic (‘luxury’) goods
Where change in income leads to more than
proportionate change in quantity demanded
YED is greater than 1
Income inelastic (‘necessity’) goods
Where change in income leads to less than
proportionate change in quantity demanded
YED is less than 1

11. Usefulness of YED
YED is useful for a business as it allows them to:
 Forecast future changes in sales based on a
forecasts of changes in income
This allows them to:
 Forecast future revenue from sales
 Anticipate future demand by planning capacity
required
 Adjust their ‘product portfolio’

12. Task 3
In pairs, prepare a
short presentation
on YED using a
blog entry on
Tutor2u
Present your
findings to the
rest of the group
using KeyNote

13. Task 4
In your table groups, talk
through the past paper questions
on YED
How will you show analysis (AO3)
and evaluation (AO4)?
Individually, write up answers
for assessment