Income elasticity of demand (YED)

Income elasticity of demand and its determinants

Income elasticity of demand: measures the responsiveness of demand to a change in consumer’s income.

  • Shifts demand curve due to changed income


  • Normal goods: positive value of YED
  • Inferior goods: negative value of YED
  • Necessities: Income inelastic of demand
  • Luxuries: Income elastic of demand

Applications of income elasticity of demand


  1. Firms: can predict the effect of a business cycle on sales