Income Elasticity of Demand
A measure of the responsiveness of demand for changes in income.
Similar to PED, the formula for calculating the income elasticity of demand (YED) is:
$$\mathrm{YED} = \frac{\%\Delta Q_{\mathrm{D}}}{\%\Delta Y}$$
Where:
Assume your income increases from $\$ 1000$ to $\$ 1250$ and your spending on clothes increases from $5$ pieces to $10$ pieces.
Unlike $PED$, income elasticity of demand will likely be positive, but there are some goods where the opposite happens.
Normal goods have a YED that is positive and are goods for which demand increases as consumer income rises.
Most goods are normal goods.
Inferior goods have a negative YED where the demand for them decreases as consumer or household income rises.
Second-hand clothes are likely to be inferior goods because as people's income rises, they would switch to buying new clothes.
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