GCSE Economics Revision: Income elasticity of demand (YED) (With Mock Questions!)
Hello, GCSE Economics Students! 👋
Are you ready to tackle Income Elasticity of Demand (YED)? Don’t worry, we’ve got this! Let’s break it down, cover the essentials, and throw in some practice questions to get you exam-ready. You’ve got this!
GCSE Economics Revision: Income Elasticity of Demand (YED) 📈
Income Elasticity of Demand (YED) measures how the quantity demanded of a good responds to a change in consumers' income. In simpler terms, it shows us how demand for different goods increases or decreases when people’s income goes up or down.
If you nail this concept, you’ll be well-equipped for the exam! So, let’s dive into the essentials.
Key Learning Items to Know
👉 YED Formula: Percentage change in quantity demanded divided by the percentage change in income.
👉 Types of goods:
- Normal goods: Positive YED (demand increases as income rises).
- Inferior goods: Negative YED (demand decreases as income rises).
- Luxury goods: YED greater than 1 (demand increases significantly with income rise).
👉 Interpreting YED values:
- If YED is positive, it’s a normal good.
- If YED is negative, it’s an inferior good.
- The larger the number, the more sensitive demand is to income changes.
What You Need to Demonstrate at This Level
To ace the exam, you’ll need to show that you can:
✔️ Explain how income elasticity of demand works and why it’s important for businesses and policymakers.
✔️ Calculate YED using the formula accurately and interpret different results.
✔️ Apply YED to real-life examples, like explaining why luxury cars have a higher YED than bread.
✔️ Evaluate how different goods behave in terms of income elasticity and how businesses can use this information to predict consumer demand.
Key Things to Remember Before the Exam 🧠
🔥 Memorize the formula! YED = % change in quantity demanded / % change in income. Don’t mix it up with price elasticity formulas.
🔥 Understand the difference between normal, luxury, and inferior goods. Think of real-life examples for each to solidify the concept.
🔥 Practice interpreting YED values. If YED is -0.5, what does that mean? It’s an inferior good! If it’s 1.8? That’s a luxury good!
🔥 Get comfortable with calculations. Practice, practice, practice—your calculator is your friend here.
🔥 Time management during the exam. Know when to move on if you’re stuck on a question. You can always come back later!
Mock Questions for Practice! 🎯
Here are five questions to help test your understanding. Try them out and see how well you do!
Q1 - Which type of good has a negative income elasticity of demand?
a) Normal good
b) Inferior good
c) Luxury good
d) Complementary good
Q2 - What does it mean if a good has an income elasticity of demand (YED) greater than 1?
a) The good is an inferior good.
b) The good is a necessity.
c) The good is a luxury good.
d) The good is a normal good with inelastic demand.
Q3 - A product has a YED of -0.2. Which of the following statements is correct?
a) The product is a luxury good.
b) The product is an inferior good.
c) The product is a normal good.
d) The product’s demand does not respond to income changes.
Q4 - If consumer incomes increase by 10% and the quantity demanded for a good increases by 15%, what is the YED?
a) 1.5
b) 0.67
c) 1
d) -1.5
Q5 - A good with a YED of 0.8 is most likely to be:
a) A luxury good
b) An inferior good
c) A necessity
d) A good with perfectly inelastic demand
To check your answers and see more questions check out our GCSE Economics Multiple-Choice booklet, with 250 sample questions and answers for you to revise
Good luck with your revision! Remember, practice makes perfect, and you’re more than capable of acing your exam. Keep at it, and don’t forget to take breaks! ✨