What is likely to happen to the demand for these products when incomes rise by 15%?

Income Elasticity of Demand YED measures the responsiveness of quantity demanded to a change in income it is the mathematical relationship between ∆Y & ∆Qd YED = %ΔQd Books 0.1, ST 2, PT –0.333 %ΔY A school's income increases from £1m to £2m: spending on Books increases from £100,000 to £110,000, while spending on sports team visits abroad increases from £10,000 to £30,000.  Spending on Public Transport falls from £150 to £100. Calculate the YED of Demand for Books, Sports Trips and Public Transport 

Income Elasticity YED Tells us about the type of good: for all ‘normal’ goods, YED will be positive (as we earn more, we buy more) for ‘inferior’ goods, YED will be negative (as we earn more, we buy less) Y Normal good Inferior good Q

Income Inelastic Demand Y Income Inelastic Demand a large income change results in only a small change in Qd 0<YED <1 found on ‘necessities’ (we buy the same amount regardless of income changes) Y1 Y0 D Q0 Q1 Q

Income Elastic Demand Income Elastic Demand Y Income Elastic Demand  a small income change results in a large change in Qd  YED>1  found on ‘optional’ products (a little boost in income suddenly adds these items to our basket) D Y1 Y0 Q0 Q1 Q

Table and Examples of YED Description YED Comment YED<0 Inferior Good Income Inelastic Demand Necessities Unitary YED Income and Qd change by same % YED>1  Luxuries Some examples of YED's Automobiles 2.98 Books 1.44 Restaurant Meals 1.40 Tobacco 0.64 Margarine −0.20 Public Transportation −0.36 Income elasticities are notably stable over time and across countries