Defining & Calculating Income Elasticity of Demand (YED)
- Changes in income result in changes to the demand for goods/services
- Economists are interested in how much the quantity demanded will change for different products
- Income elasticity of demand (YED) reveals how responsive the change in quantity demanded is to a change in income
- YED can be calculated using the following formula
Worked example
A consumer's income rises from £100 to £125 a week. They originally consumed 12 bagels at the local bakery, but this increased to 15 bagels a week.
Calculate the YED of the bagels
Step 1: Calculate the % change in QD
Step 2: Calculate the % change in Y
Step 3: Insert the above values in the YED formula